Over recent years we’ve been through a period of relatively benign external inputs, with low fuel prices supporting lower fares and a solid global economy supporting demand. This has propelled the industry into a period of unprecedented profitability (although US airlines, mostly operating domestically, have accounted for around half of this).
The period of high profitability is unlikely to continue as oil prices, currently in the mid-USD60s/barrel for Brent Crude, creep up and as business and consumer confidence – at least, outside the US – slips rapidly.
The IMF recently issued a warning that the global economy is weakening “faster than expected” and downgraded GDP growth forecasts for 2019, and the European Central Bank has “substantially” revised downwards its economic growth projections for 2019, implying a slackening of demand in markets which have become increasingly price sensitive.
At the same time, the entire aviation system is undergoing a technology-led upheaval of volcanic proportions, challenging conventional norms and demanding new solutions to new problems (and opportunities).
Airline management’s role is to prepare for and manage the airline prudently through good times and bad; in a downturn this means minimising the impact on profitability while remaining competitive.
The CAPA Asia Aviation & Corporate Travel Summit attempted to tap into the latest industry issues and developments, challenging leaders of the industry to reflect on what is needed to drive the industry forward.
This event, hosted at the Capella Singapore, ranked as one of best hotel experiences in Singapore, brought together hundreds of aviation and travel executives from airlines, airports and suppliers to explore relevant issues, as well as the commercial and operational pillars underpinning strategic decision making at international carriers.
Here’s some airline insights from the event:
China’s ‘One Airline One Route’ policy has been officially dropped
China Southern Airlines SVP of international and corporate relations Guo Xiang Wu confirmed the Chinese government has “officially dropped” its ‘One Airline One Route’ policy. Mr Wu said different airlines can operate on the same international routes, but the government is still the one that allocates traffic rights and many routes still have operating restrictions preventing operation by more than one carrier.
VietJet Air plans long haul narrowbody operations to Australia and Eastern Europe
VietJet Air member of the board of management Cuong Chu said the carrier has plans for a long haul expansion, having recently signed a contract with Airbus for 20 A321XLRs. Markets under consideration are Australia and the “former Eastern Europe”. Mr Chu said the carrier has no plans for expansion to the US, as the trans Pacific market is “very competitive” with about six airlines operating.
Jetstar Asia reports ‘good uplift in numbers’ in the corporate travel segment
Jetstar Asia CEO Barathan Pasupathi said the airline has experienced a “good uplift in numbers” in the corporate travel segment. The carrier works with Qantas on a dual brand strategy, as well as having interline and other relationships with close to 80 partners. Jetstar Asia also works with travel management companies and other corporate travel partners. Mr Pasupathi said the business travellers are “very savvy”, and corporates look for “safety, reliability and good customer service with an affordable fare”.
Low fares are the ‘best frequent flyer programme in the world’
IndiGo chief commercial officer Willy Boulter said the carrier has the “best frequent flyer programme in the world, it’s called low fares”.
Ease of payment an essential in capturing corporate travel
Garuda Indonesia president & CEO I Gusti Ngurah Askhara Danadiputra said one of the most important elements in capturing corporate travel is ensuring the ease of payment, and if airlines do not have the right relationships with banks and payment partners, then corporate travellers won’t fly with you. He added that a strong loyalty offering is also important, particularly in a downturn, as frequent flyer miles are “favoured by passengers”.
China Southern would rather collaborate with LCCs than launch its own
China Southern Airlines SVP of international and corporate relations Guo Xiang Wu said there are no “certain” plans for the carrier to start its own LCC. Mr Wu said he thinks launching an LCC is a “bad choice” for China Southern Airlines, but there is a need for the carrier to add more partners to meet customer needs. The preference for China Southern Airlines is to cooperate with LCCs rather than start its own said Mr Wu.
Thai AirAsia sees only about 3% of our traffic classed as ‘corporate’ travellers
Thai AirAsia executive chairman Tassapon Bijleveld said about 3% of passengers on Thai AirAsia are classed as corporate travellers, although most of these are not really “corporate” travellers but rather about 90% are government travel. He believes the slowdown in traveller growth is being felt in Asia, “especially in Thailand where we depend on tourism”. Mr Bijleveld said that while tourism traffic is “coming back” with a 2% increase in 2019, it is “still not where it used to be”. He also reported the strong Thai baht is not helping, as it can make travel to Thailand 15% to 20% more expensive depending on the source market. The carrier “cannot recoup the gap in the exchange rates” even if tourism returned to normal level.
Hong Kong has never experienced a drop in traffic like this before
Hong Kong Airlines vice president Ben Wong said Hong Kong experienced a 35% decline in overall visitors in Sep-2019, along with a 12% drop in passenger flow at Hong Kong International Airport for the same month, which “has never happened before”. Mr Wong said everyone in Hong Kong is looking forward to a quick resolution to the situation.
Garuda Indonesia looking at 14 business areas outside of core airline operations
Garuda Indonesia president & CEO I Gusti Ngurah Askhara Danadiputra said the carrier is working on expanding beyond its core business, with the wider group encompassing 14 business areas where it is expanding its operations outside its traditional scheduled passenger operations. Major additions are MRO and cargo, as well as enhanced charter services with a focus on China. Garuda Indonesia Group is also enhancing operations in areas that have traditionally been considered as cost centres – such as training, ground handling, engineering support and catering – and turning them into new business opportunities. The group is also pursuing an number of business areas outside of aviation, including e-sports and health services.
Ancillaries are growing ‘way ahead’ of unit revenue at India’s IndiGo
IndiGo chief commercial officer Willy Boulter said generating ancillary revenues in India is a “challenge” but in the last 18 months the airline has managed to increased ancillaries “way ahead” of unit revenue. Mr Boulter reported IndiGo only generates around 8% of its revenue from ancillaries, but there are plans to introduce new F&B products, and there is a “lot we can do” in the ancillaries space even with intervention from Indian regulators.
There are opportunities to collaborate ‘in the verticals’ with sharing economy
Jetstar Asia CEO Barathan Pasupathi said the carrier thinks there is an opportunity to collaborate “in the verticals” with ridesharing companies and accommodation providers and similar, to take opportunities “across the whole chain” of a passenger journey.
US and Chinese airlines pushing for more access to each other’s markets
China Southern Airlines SVP of international and corporate relations Guo Xiang Wu said Chinese airlines are now approaching the US to secure more traffic rights. This is a reverse from 10 years ago, when US carriers were seeking open skies, according to Mr Wu. He noted the main question is “how to balance rights allocation to benefit both sides”.
LOOK OUT…Exclusive executive interviews from Singapore will be published on CAPA TV in the coming weeks, as well as full coverage of the agenda sessions.
Hong Kong Airlines looking forward to capacity growth new Hong Kong runway will offer
The carrier is looking forward to addition of the third runway at Hong Kong International Airport, which will increase aircraft movements per hour by 50%. The new runway is a “middle term measure to add capacity”. In the interim, the airport is undertaking shorter term efforts to improve on time performance to make best use of existing capacity. Mr Wong noted that even with the new third runway, forecast passenger growth means the airport will be “near” saturation when it is completed, so there is “maybe” a need to start thinking about a fourth runway.
IndiGo undertaking a ‘big push on corporate travel’
IndiGo chief commercial officer Willy Boulter said the carrier has a “big push on corporate travel” and IndiGo has “several hundred” corporate travel agreements in India. Corporate travel is “a very important slice of our market and we pay attention to it”. Mr Boulter said IndiGo thinks its product and network will “appeal to corporates”, which each corporate travel relationship being “slightly different”.
Airlines need to work with airports and governments to improve immigration areas
Bangkok Airways advisor to board of directors Peter Wiesner said for an airline customer, the first image of a host country they are arriving in is immigration and many countries have a “lousy, lousy, lousy immigration service”. Mr Wiesner said there is a need to improve the immigration process as much as the industry can, to reduce the congestion seen and experienced by customers. He added that airlines should work with government and airports to improve immigration and customs for the customer.
China has adjusted more than 50,000km of air routes for new Beijing airport
Hong Kong Airlines vice president Ben Wong noted China has adjusted more than 200 air routes with the opening of the new Beijing Daxing International Airport, adding more than 100 navigation waypoints and changing 50,000km of air routes within its airspace. Mr Wong also reported the CAAC and IATA have been working together to mitigate some of China’s airspace issues, including opening up areas that were previously restricted airspace for military flights.
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