Asia Pacific airlines cheer strong recovery, increasing demand for luxury air travel

With air passenger traffic at over 90 per cent of pre-pandemic levels, the airline industry has more than doubled its net profit forecast for this year.

Domestic travel has fully recovered, while international traffic is catching up, with carriers in the Asia Pacific region leading the recovery, data from the International Air Transport Association (IATA) showed.

Easing inflation and declining jet fuel prices suggest sustained strong air travel demand and moderating costs, said the association, which represents some 300 airlines.

CNA spoke to several airlines’ chiefs from Asia Pacific at IATA's three-day annual summit in Istanbul this week.

They said the demand for air travel remains strong and profitability outlook is robust, but cautioned that delays in getting planes could dampen recovery and keep ticket prices high.

Premium air travel is also increasingly popular, with several airlines scrambling to fill the gap in the market with more luxurious offerings.

JAPAN AIRLINES (JAL)

While tourists are flocking back to Japan, JAL’s outbound traffic remains relatively weak at only about 50 per cent of pre-pandemic levels.

A weak yen and rising inflation have dampened locals’ appetite for travel.

The market between Japan and mainland China is still depressed, with JAL’s flight frequencies along this route operating at less than half, compared to before the pandemic.

Despite sluggish recovery in these areas, international traffic has buoyed earnings.

Bookings for the previous and current quarters have been strong, and the airline is seeing high demand for the upcoming summer holiday period, said its managing executive officer Ross Leggett.

The flag carrier said it is mostly back at full capacity for outbound routes to Europe, with few exceptions such as Moscow.

The airline is also adding flights to its Hawaii and Guam routes.

With premium travel seeing resurgence, the airline is tapping into the market by acquiring new planes featuring luxurious suites.

“We will be introducing the Airbus A350-1000s which will have a new service concept, new business cabins, new first cabins,” Mr Leggett said, adding that the airline will soon issue an official announcement.

EMIRATES AIRLINES

Emirates said its flights are fully booked through to the first quarter of next year.

The airline exceeded its financial expectations in the previous year, and its president Tim Clark said this year’s results look on track to perform even better due to heightened demand.

Operating capacity is not yet back to pre-pandemic levels, with about 16 to 20 of the carrier’s Airbus A380s still grounded and undergoing technical remediation.

With demand outstripping supply, ticket prices are likely to remain high.

Like Emirates, many Asian carriers are also facing the same issue of trying to get capacity back up to pre-pandemic numbers, said Mr Clark, citing Singapore Airlines, Cathay Pacific, and Malaysia Airlines.

“I'm afraid prices are likely to stay where they are until there is an adjustment of the supply-demand equation. This is a problem for the Asian markets particularly – they are very strong in terms of demand from the West, and vice versa,” he said.

“I can't quite see the capacity restoring at the pace to get them back to where they were prior to the COVID situation. And where the capacity doesn't meet the demand, prices will remain as they are.”

Emirates is putting in a substantial order of between 100 and 150 new planes as its fleet of A380s is set to retire in the next 10 years.

Mr Clark also said the premium travel market looks set to grow exponentially.

The airline introduced a premium economy cabin in August last year with 56 seats on the main deck of its A380s.

“They are completely full,” said Mr Clark, adding the take-up rate has been overwhelming.

“People are not trading down from the upper deck. They are coming up from economy (class). We already knew that in the higher price point segments of the economy, if people could get more by paying a little bit more, they would take it. We underestimated the demand.”

AIR NEW ZEALAND (AIR NZ)

Air New Zealand on Thursday (Jun 8) revised its 2023 full-year earnings forecast upwards to US$350 million, on the back of strong demand and cheaper fuel.

The airline’s chief executive officer Greg Foran said that the travel industry is more robust than ever post-pandemic, and like most airlines, the Kiwi flag carrier is riding a wave of recovery.

“It's a good period to be an airline, we’ve got a situation where demand exceeds supply. So that's driven pricing and higher profits,” Mr Foran told CNA’s Asia Now.

However, the airline is still not quite seeing pre-pandemic figures from East Asia.

While Japan is warming up with numbers expected to recover in about six months, China’s outbound tourism is much slower due to administrative roadblocks such as visa renewals.

Mr Foran also sees some turbulence ahead in the form of supply chain issues, the price of carbon emissions, and cost pressure affecting productivity.

Still, the airline is investing US$2.2 billion over the next five years for new aircraft and retrofits, cautiously optimistic about the tailwinds giving its bottomline a boost.

THAI AIRWAYS

Thai Airways, which filed for bankruptcy protection in 2020, said it expects to be in the clear earlier than anticipated next year.

CEO Chai Eamsiri also flagged the possibility of relisting its shares on the stock exchange by the end of 2024.

The Thai national carrier had to be bailed out with a US$5.3 billion rehabilitation plan three years ago, with the government taking a 40 per cent stake.

Rising passenger volumes have helped the airline post a net income of US$368 million in first quarter earnings this year, rebounding from a net loss a year ago.

“Overall, both passenger and cargo numbers are a lot better than pre-COVID,” said Mr Chai, adding that the airline is expecting a boost in the upcoming summer peak travel period.

Thailand expects international arrival to hit almost 30 million this year. Although the number is still lower than the 40 million in 2019, the airline currently does not have the ability to carry more passengers.

“We don't have the capacity to accommodate more traffic. We are seeking more aircraft this and next year,” said Mr Chai.

Thai Airways is talking to manufacturers about adding 30 new wide-bodied planes, both to renew its fleet and to add new routes with the aim of getting back to pre-pandemic levels by 2027.

SRILANKAN AIRLINES

SriLankan Airlines is projecting a return to profit based on an expected rebound in tourism.

The flag carrier, which was plagued by economic challenges in the country, broke even for the first time in a decade on a profit level for fiscal 2022, despite a severe fuel shortage that forced its planes to refuel in India and Singapore.

The airline believes the worst is over in light of growing passenger yields, and expects to be in the green next year.

'“Our outlook for 2024 is even stronger. The Sri Lankan economy is rebounding. Tourism is coming back,” said the airline’s CEO Richard Nuttall.

“We are forecasting perhaps a US$50 million profit next year.”

Mr Nuttall added that even as currency devaluation makes it more expensive than ever for Sri Lankans to travel, local sales numbers are still going strong.

He also emphasised a need to repair the airline’s balance sheets, restructure its debt level after drastic operational cuts, and restore its fleet and network.