Asia-Pacific Airlines See Demand Roaring Back

Asia-Pacific airlines and the international operators that serve the region have been accelerating their capacity recovery on international routes in recent months, although the region still has some way to go to catch up with other parts of the world.

International demand has undoubtedly roared back, as evidenced by the elevated average fares and profits of some airlines. Airlines have tried to keep pace by returning more parked aircraft to service and purchasing or leasing additional lift, but supply is still constrained. This means international capacity is being determined more by aircraft availability than by demand levels in many cases.

There remains a lot of variance between sub-regions in the broader Asia-Pacific region. The Northeast Asia sub-region still lags other parts, such as Southeast Asia and Australasia. However, even in Northeast Asia the improvement has been dramatic since the first quarter of 2023.

As we entered the 2023 fourth quarter, system seat capacity in the Asia-Pacific region had almost fully recovered to pre-pandemic levels, according to CAPA and OAG data. The figure of 98.9% for the week commencing Sept. 25, 2023, was the highest recorded in the post-COVID environment and was up almost 20 percentage points on the levels recorded at the start of 2023. As a region, Asia-Pacific is now ahead of Europe in terms of system capacity recovery, but it still trails a long way behind in international flying.

The recovery, unsurprisingly, has been driven by the large domestic markets in the region. Domestic capacity has consistently performed ahead of the global average since the start of 2023 and ahead of 2019 levels since the end of the first quarter of 2023. International capacity recovery is still some way behind but has been on a healthy growth track, albeit from a lower base than domestic.

International seat capacity passed the 80% recovery level in early September 2023 and had surpassed 82% of 2019 levels as we entered the fourth quarter. This compares to a 59.7% recovery rate at the start of 2023, and 73.6% at the start of May 2023.

The international capacity recovery by Asia-Pacific airlines has lagged those in the other regions since the beginning of the pandemic. However, the gap between Asia-Pacific airlines and the other major regions has narrowed considerably through 2023. The rate of increase has been much steeper than in Europe or North America in 2023.

International demand has surged dramatically over the past year, keeping load factors high. The Association of Asia-Pacific Airlines (AAPA) reports that demand has also been rising strongly. The group said that international passenger numbers for Asia-Pacific airlines had risen by 146.6% in July and 129.7% in August versus the same months in 2022.

International demand as measured in revenue passenger kilometers increased 107.6% and 102% year-on-year over the two months, with capacity (in available seat kilometers) up 98.8% and 88.7%, respectively. Average load factor rose by 3.6 points to 83.7% and 5.4 points to 82.8%, which AAPA says is in line with 2019 levels.

Despite a moderation in global economic activity, demand has continued to grow in the services sectors across Asia-Pacific, including travel and tourism. Against this background, Asia-Pacific airlines saw a healthy 232% increase in the number of international passengers carried to a combined 171 million during the first eight months of the year, according to AAPA.

GOOD BOOKING TRENDS

AAPA predicts demand will stay strong with forward booking trends indicating resilient travel demand in the coming months. While this augurs well for the passenger business segment, airlines are facing higher costs, driven by inflation and the recent rise in jet fuel prices, which threaten to squeeze margins.

Delays in aircraft deliveries and parts shortages may also affect airline fleet deployment plans. Competition is also intensifying, in tandem with the increase in capacity globally. Boosting airline fleets will certainly be the driver for capacity growth, but this could be a long-term process.

International capacity in the Asia- Pacific region should continue to rise more quickly than in the other main regions in the short term, a recovery that will be spurred by the Northeast Asia sub-region. This includes markets such as Japan, Hong Kong and mainland China, which were relatively late to ease travel restrictions.

Weekly international seat capacity in Northeast Asia has improved to over 70% of 2019 levels as of the start of 2023 fourth quarter. Although the increase has plateaued somewhat since July, it is still significantly above the less than 50% levels recorded up to late March and still has notable room for improvement.

In contrast, Southeast Asia’s international seat capacity was at 80.7% of 2019 levels, with Southwest Pacific at 87.5%, and South Asia (105.7%) tracking ahead of 2019 levels. Central Asia continues to perform the strongest across this geographic area with international capacity up 139.4%, albeit from a major lower base, having performed above 2019 levels since June 2022.

Some of the major markets in the region are in Northeast Asia, such as Japan and mainland China, and these notably have the most room for improvement over the remainder of 2023 and into 2024. These were some of the largest sources of leisure travelers before the pandemic, so their importance cannot be overstated.