The next 12 months will be pivotal for Asia-Pacific aviation. A diverse region with countries at different levels of maturity will face a multitude of challenges, from a demand surge to sustainability.
At least the foundations are stronger than anticipated. Asia-Pacific began 2022 in a state of near lockdown with most of the major markets under some form of travel restriction. But, as the year progressed, Australia, Singapore and Thailand opened to international travel, followed by India and New Zealand. By October, two remaining major markets, Korea and Japan, also removed the last of their travel restrictions.
And then there was China.
“The recovery momentum really accelerated in the second half of the year,” says Philip Goh, IATA’s Regional Vice President for Asia-Pacific. “But nobody was prepared for China opening so soon. The thinking was that Q3 2023 might be possible.”
How China will affect markets in 2023 remains to be seen. There are still testing requirements to enter the country and, as yet, there is little sign of the massive Chinese outbound market picking up.
“Where foreign carriers used to serve 20-plus Chinese destinations multiple times a day, we are only seeing flights a few times a week,” says Goh. “So, there is a long way to go. But if we do get testing requirements lifted and if the outbound market returns, then 2023 promises triple digit growth for the Asia-Pacific region.”
Supply will need to keep up with this potential demand surge. Some airports were proactive during the long lockdown. Singapore’s Changi Airport, for example, closed its Terminal 2 for extensive refurbishment. The terminal is now half open again with the full opening expected in 2024. Vietnam, meanwhile, is looking ahead and has launched multiple new airport projects. But it is a mixed bag, and other countries must work hard to ramp up aviation activities again.
Staff shortages also have to be taken into consideration. This runs across the entire aviation spectrum following the loss of staff during the pandemic. Pilots may be the biggest issue as the region hasn’t got the numbers in training that will be needed. Again, though, it very much depends on the individual country or carrier. Fortunately, the region’s delayed restart means there are lessons to learn from Europe and the United States and, says Goh, these should ensure the recovery is not unduly affected.
SAF production
As traffic services head toward normality, sustainability will increasingly dominate the agenda. The supply of sustainable aviation fuels (SAF)—critical to aviation achieving net zero carbon emissions by 2050—is insufficient everywhere and Asia-Pacific is no exception.
The positive news is that the world’s largest SAF production facility will be located in Asia-Pacific once Neste’s Singapore production plant opens at the end of Q1 2023. The $1.4 billion project will be capable of producing 1 million tonnes of SAF every year. This, together with other projects in the region, should provide the impetus for further development.
Nevertheless, supply in the region isn’t yet strong enough and needs urgent government support. “Governments in the region must step up and provide the right incentives for SAF production and usage,” says Goh. “There are going to be so many flights in this region in the years ahead, including long haul, and we need more SAF.
“SAF production incentives will attract private investors to increase supply,” he continues. “After all, there is no point in mandating something you haven’t got a supply of. But the truth is the region has many different types of government and culture and we will likely see a diverse approach.”
Japanese carriers have advanced procurement plans to meet the target of replacing 10% of their fuel consumption with SAF. Elsewhere, QANTAS and Air New Zealand are also committed to using SAF while Singapore Airlines’ strategy has developed to align with Singapore’s Green Plan.
“But we are still at the start of the journey with SAF,” says Goh. “Governments must do more to help us reach our destination.”
Managing costs
There are plenty of other challenges for Asia-Pacific in the year ahead. The transition to risk-based IOSA (IATA Operating Safety Audit) will be a major factor in improving safety. IATA will also be reaching out to those carriers in the region that are not yet members to promote safety and other industry standards alongside the benefits of membership.
Meanwhile, the need to optimize airspace continues. Work is ongoing on cross-border air traffic flow management but in general a greater ability to exchange data will be an essential driver. Any airspace changes within the region will also need to be carefully managed, as will key flight corridors, such as Europe-Asia, that remain susceptible to external or geopolitical events.
Myanmar could become a hot spot. The IATA BSP (Billing and Settlement Plan) has been suspended and ASEAN (Association of Southeast Asian Nations) is looking for solutions to the geopolitical situation.
“But cost will perhaps be the biggest challenge for airlines in Asia-Pacific,” suggests Goh. “Fuel prices are high and other costs are increasing too, including staff costs. At the same time, airlines are resuming services and market competition is increasing. The robust yields that airlines are currently earning will start to moderate as seat capacity is restored.
“A lot of airlines in the region are still in the red following the pandemic,” he adds. “But if they are to invest in sustainable initiatives and promote social and economic growth, they need a better financial foundation. It is vital that governments do not erect any barriers to travel, incentivize SAF to make it affordable, and ensure that aviation is allowed to fully recover.”
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