The crème de la crème of Asia Pacific’s aviation world turned up in Bangkok from November 10 to 11, in a show with everything but Yul Brynner.
Just like Somerset Maugham 100 years ago, we found ourselves congregating in a hotel – not quite The Oriental – but a stretched, sanitized resort nevertheless, overlooking the muddy Chao Phraya.
The two-day pow-wow saw chief executives (or their representatives) from 13 regional airlines, all members of the Association of Asia Pacific Airlines, gathered together to deliberate, then passed three resolutions, namely seamless cross-border travel, safety excellence and sustainability.
When it comes to Asia Pacific’s aviation future much will depend on whether the issues faced by these airlines, most of which are national carriers, are just one-off problems (brought by Covid) or if they will worsen as we prepare to enter what could be a period of prolonged global recession.
There was a general consensus that, despite the ominous signs of financial fissures, 2022 will likely close out with several of the AAPA members in very healthy liquidity positions.
Indeed, Singapore Airlines, often seen as a barometer for the industry, reported a record first-half operating profit of SGD1.2 billion or close to USD880 million, just days before the conference in the city of angels.
Malaysia Airlines, still feeling the impact of two tragic incidents from 2014, appear to be on the mend, too, and would have broken even this year, claimed its CEO, had it not been for the outbreak of conflict in Ukraine and rising jet fuel prices.
The airline, wholly owned by the government, was the quickest carrier to restructure in the world, concluding a deal with 75 creditors that were owed MYR15 billion in under five months.
Worryingly, however, for MAS (which is unhedged) and the other airlines, is the continued strength of crude and the correspondingly higher costs of hedging due to the weakening of local currencies against the greenback.
“That is the single biggest concern for all member airlines,” confirmed Subhas Menon, the AAPA’s director-general.
One night in Bangkok and the world’s your oyster
A century ago Maugham complained of “insipid Eastern food” and wats that “oppressed me by their garish magnificence…” but thousands of tourists have thronged Bangkok so far this month alone, with Airports of Thailand – the company managing the country’s six international airports – lamenting its lack of staff at Suvarnabhumi Airport to cope with the crowds.
The AoT isn’t the only Thai organization facing a crunch.
Thai Airways International, which hosted the AAPA event, is drowning in debts.
The flag carrier filed for bankruptcy before the onset of Covid, and posted a loss of USD4.5 billion in 2021.
Despite having won court approval to restructure debts of close to USD13 billion, the outlook remains bleak for THAI unless the government is willing to inject more than the USD2 billion it hopes to raise via a debt-to-equity scheme.
The airline remains bogged down by bureaucracy and still feels the brunt of foolish forays committed over 15 years ago, when it acquired the exceptionally uneconomical Airbus A340 family, using them to start money-losing ultra long-haul flights to the US.
The fundamental problem for THAI, as it is for another beleaguered Southeast Asian national airline – Garuda Indonesia – is that the governments which control these airlines are now bereft of ideas (and funds) to rejuvenate the companies.
That, and in the case of Garuda, a misplaced pride in its ability to amicably and sensibly resolve financial and leasing disputes with creditors and manufacturers, has led to the airline languishing without a clear trajectory post-Covid.
Garuda is emblematic of a state-owned enterprise which has for decades been abused by vested interests and corrupt individuals managing the airline.
And as the likes of SIA, MAS and Cathay Pacific Airways used the crisis to boost its resilience and balance sheets, Garuda’s poor governance became exposed, compounded by the growth of savvy discount carriers such as the PT Lion Group.
And so whilst the AAPA rightfully chastised many governments for remaining sluggish and uncoordinated in harmonizing travel requirements which would have greatly helped their airlines, and domestic tourism, it is clear a few of its members will continue to struggle because of hubris.
Things will get better or worse, you decide…
Venice of the East: A panoramic view of the Chao Phraya coursing through Bangkok
Notwithstanding the profits being generated today – largely due to very steep airfares and driven by an unrelenting desire to travel – the general consensus at the end of the communion was positive.
The first quarter of 2023 is projected to see more or less similar pent-up demand for flying, “revenge travel” as many have now come to romantically describe it.
Although there is a clear conundrum – airlines are showing upward momentum even as micro-economic numbers slip further south – it is hard to see how this could all be sustained.
Apart from inflation and a looming financial crisis, other external threats have the potential to upend this nascent recovery, including geopolitical tensions, natural disasters and climate change.
The complexity of the impending economic crisis means airlines, especially those backed by weakened currencies, cannot do much to change their fate until or unless they learn how to plug the gaps.
It seems clear trade will stagnate with China remaining shut – and not just for the goods that country produce – but the vast supply of Chinese tourists that once traversed all four corners of the globe prior to Covid.
Recent data have shown a marked decline in the middle class, between 20 million and 30 million – as a result of the pandemic – in both China and India, that could severely shift travel patterns for the rest of this decade.
There are other implications, too.
What happens in Hong Kong, for instance, could provide a clue on how quickly (or slowly) the mainland manages to reemerge from its self-imposed hibernation, according to Lavinia Lau, a Cathay Pacific executive during a panel discussion.
In other words, Hong Kong is a guinea pig, a test bed that could help determine how well China exits its lockdown without damaging its infrastructure and more importantly, its social cohesion.
All told, in the longer term (beyond 2030) AAPA member airlines will require an industrial strategy that ensures many of the problems that arose from the crisis are dealt with.
There is uncorroborated data that Southeast Asia’s savings ratio – how much households save as a percentage of their resources – have slipped some 10% so far this year due to intense inflation.
The real fear is that this could rise further next year.
Moreover, there is a lingering fear in the industry of a permanent loss of skilled workforce, punctuated by stagflation and growing individual and regional inequalities.
Many academics now suggest that the long-term costs of Covid are going to be considerably bigger than what officials have anticipated.
The hope is that airlines in the region will find new ways to generate revenue once airfares stabilize and subside, and demand for flying wanes due to a depressed market.
For the time being, there are far too many unknowns as to what a post-Covid landscape shaped by a stressed demand-supply chain would look like.
Endau Analytics 