Commentary: Singapore’s aviation and tourism recovery will be very slow after COVID-19 but long-term outlook remains bright
Singapore Airlines and Changi Airport have strong state support, and the lack of a domestic market could be partially overcome if Singapore joins with other countries to create travel bubbles once recovery begins, says Brendan Sobie.
SINGAPORE: The recovery of Singapore’s aviation and tourism sectors in the wake of COVID-19 will be painfully slow.
But eventually, the market will fully recover and Singapore could emerge as an even stronger hub over the long term due to strong government support.
This is in spite of the bleak short-term outlook for Singapore – bleaker than other countries due to Singapore’s lack of domestic air transport and domestic tourism markets.
COUNTRIES WITH LARGE DOMESTIC MARKETS HAVE AN ADVANTAGE
Countries with large domestic markets will have an advantage in the first phase of the recovery as it will take time for borders to reopen and for travellers to be comfortable again with international travel.
China’s domestic market already started recovering in March. Other domestic markets in Asia Pacific could start recovering over the next two months.
The domestic recoveries will be gradual. Some domestic markets could reach pre-crisis levels later this year, with domestic travel even potentially surpassing pre-crisis levels, if local virus containment is successful but lingering issues abroad lead to a higher-than-normal portion of residents holidaying in their own countries.
In the Asia-Pacific, Australia, China, India, Indonesia and Japan have an advantage. Each had more than 60 million domestic passengers in 2019.
In Southeast Asia, Malaysia, Philippines, Thailand and Vietnam also have sizeable domestic markets with at least 25 million annual passengers.
Southeast Asia’s top four airports – Bangkok Suvarnabhumi, Jakarta Soekarno-Hatta, Kuala Lumpur International and Singapore Changi – are similarly sized, each handling between 60 and 70 million annual passengers before this crisis.
Changi is by far the largest in terms of international traffic as it is 100 per cent international compared to 81 per cent for Suvarnabhumi, 72 per cent for Kuala Lumpur and only 23 per cent for Jakarta.
In Australia, prior to the crisis international accounted for 38 per cent of total passenger traffic at Sydney and 31 per cent at Melbourne.
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DOMESTIC TRAVEL COULD FUEL FIRST WAVE OF RECOVERY
A domestic led recovery will not result in any major airport’s overall traffic returning to pre-crisis levels.
But it could help some major airports in Asia-Pacific limit traffic declines to as little as 10 per cent or 20 per cent while Changi’s traffic could remain down by over 90 per cent.
At the moment, the pain Changi is feeling is similar or only slightly worse than other major airports globally - with the exception of China, where the domestic recovery phase has already started.
Changi reported a 98 per cent drop in passenger traffic for the last week of March, driving a 71 per cent decrease for the full month to 1.7 million and a 33 per cent decrease for the first quarter to 11.0 million.
The Singapore Airlines (SIA) Group, which includes Scoot and SilkAir, also reported a 65 per cent drop in passenger traffic for March to 1.1 million passengers.
SIA did not provide a traffic figure for the last week of March but the group has been operating less than 4 per cent of its normal passenger flight schedule since the end of March.
For at least a few months, we can expect a prolonged trough with Changi passenger traffic remaining at around 2 per cent of normal levels.
GRADUAL OPENING OF INTERNATIONAL MARKETS
The recovery of international markets will enable a higher passenger throughput for Changi than the current dismal figures.
However, that start hinges on the reopening of borders and the success of virus containment efforts.
Even if Singapore’s circuit breaker measures, which have been extended to Jun 1 , are effective enough for Singapore to consider opening up again, there needs to be enough confidence the virus is contained elsewhere.
FORMING BUBBLES FOR TRAVEL
Australia and New Zealand are already talking about a possible bubble allowing travel between the two countries. This would provide a significant boost to their aviation and tourism sectors, enabling when combined with domestic recoveries their passenger traffic and tourism numbers to come closer to pre-crisis levels.
If Singapore could join the Australia-New Zealand bubble and create its own bubbles this could allow a faster start to Singapore’s recovery phase.
In addition to Australia and New Zealand, potential bubbles could be formed with China, Hong Kong, Japan, Malaysia, South Korea and Taiwan. These are all key source markets for Singapore’s tourism industry.
Australia, China, Hong Kong, Japan, Malaysia, New Zealand, South Korea and Taiwan combined accounted for 45 per cent of total visitor arrivals at Changi in 2019 and 20 per cent of Changi’s total passenger traffic.
The latter figure increases to roughly 30 per cent when also including travel by Singaporeans to these eight countries.
Visitors to Singapore accounted for 44 per cent of total traffic at Changi in 2019. The remaining 56 per cent was split roughly evenly between outbound Singapore residents and transit traffic.
Top 15 inbound markets for Singapore Changi Airport in 2019
|Rank||Markets||Visitor arrivals by air||Per cent of total|
Source: Singapore Tourism Board visitor arrival data and Sobie Aviation
Opening up to select markets would be unprecedented and perhaps politically controversial yet necessary in order for Singapore’s tourism and aviation sectors to start recovering.
However, it is too early to say when any bubbles may be pursued or if the comfort level on both sides will be sufficient to even consider any partial openings prior to the eventual total reopening of borders.
What is certain is the pace of the international recovery – whenever it finally starts – will be slow and it could take a few years for international traffic to fully recover.
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RIGHT MOVE TO REDUCE CHANGI AIRPORT CAPACITY
Until international passenger traffic and international tourism recovers, Changi Airport and Singapore’s tourism industry will be at a disadvantage because of the lack of a domestic market.
The bubbles with select countries would only kickstart the initial recovery and provide a framework for Changi traffic to be temporarily down by 50 per cent to 80 per cent instead of over 90 per cent.
Changi’s recent decision to close Terminal 2 for 18 months from May 1 recognises traffic will be significantly down until at least 2022.
The closure of Terminal 2 temporarily reduces Changi’s capacity from 85 million to 63 million annual passengers. Changi will not have to operate at overcapacity – although that would be a good problem to have – as traffic will not likely again exceed 60 million until at least 2022.
Terminal 4, which has capacity for 16 million passengers, may also be closed for a few months. However, Terminal 4 would reopen in the first part of the recovery phase.
WHY OUTLOOK FOR SINGAPORE’S AVIATION SECTOR REMAIN BRIGHT
Over the long term, the outlook for Singapore’s aviation and tourism sectors remain bright. The international market will eventually recover and Singapore’s position as a hub could strengthen due to consolidation.
Several Asian airlines will permanently shrink following the COVID-19 crisis and some may cease operations entirely, reducing or eliminating the hub status of the airports they are based at.
Singapore’s financial support of the aviation industry ensures it will be a winner and in position to take advantage of any consolidation.
While some other Asian countries will similarly support their aviation industries, few if any will provide the level of support offered by Singapore. Some countries will not provide any support of significance, leaving their airlines and airports in a potentially vulnerable position.
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Singapore’s support for the aviation industry includes a S$750 million aid package that was unveiled in March, comprising a S$400 million job support scheme and a S$350 million enhanced aviation support package, expanding on an initial S$113 million package announced in February when the COVID-19 crisis was limited to China.
The Jobs Support Scheme is providing the aviation sector with a 75 per cent wage offset for the first S$4,600 of monthly wages from April to October.
The enhanced aviation support package is providing a 100 per cent rebate on aircraft parking charges, 10 per cent rebates on landing charges and 50 per cent rental relief on lounges and offices located within Changi’s terminals.
CAAS is also allowing airlines to defer the payment of fees between April 2020 and March 2021; this benefit has a value of S$140 million but is not included in the S$750 million.
In addition, Temasek Holdings and SIA announced a rights issue that will raise S$8.8 billion to S$15 billion. The rights issue includes S$5.3 billion in new shares and S$3.5 billion in mandatory convertible bonds plus an option to issue another S$6.2 billion in convertible bonds.
This ensures SIA will have enough liquidity even if the current trough of 98 per cent reductions in passenger traffic continues for several months and if a full recovery takes a few years.
Overcoming the disadvantage of a domestic market requires a war chest that is large enough to ensure survival until there is an international recovery.
The short-term outlook for SIA is extremely challenging and even bleaker than other airlines due to the lack of a domestic market but the staggering amount of cash it has raised will enable SIA to ride out the storm and be ready to pounce when it is time to come out of hibernation.
DOUBLING DOWN ON AVIATION
The SIA Group is now in a very strong long term position relative to the overall Asian airline industry and may be able to take advantage of opportunities that arise from this crisis by acquiring other airlines and accelerating expansion.
The latter would create a stronger hub over the next several years, helping justify Singapore’s massive investments in additional capacity at Changi.
Singapore remains committed to the mega Terminal 5 project, which will be completed around 2030 and expand Changi’s capacity to 150 million passengers annually.
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As we sit in the middle of the worst crisis to hit the aviation industry and acknowledge that it could be 2023 before we return to 2019 levels, it is hard to fathom an airport handling twice as many passengers than pre-crisis levels.
However, Singapore is doubling down on aviation and its airline group as it is confident that with the right policies, strategies and support its role as an aviation hub can be maintained and strengthened.
Brendan Sobie is the founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He was previously chief analyst for CAPA – Centre for Aviation.