China’s border reopening brightens recovery of Singapore’s aviation sector, but uncertainties remain: Experts

SINGAPORE: China’s latest move to scrap COVID-19 quarantine rules for entry into the country will be a boost to Singapore’s aviation sector, said experts who described the easing of stringent border controls by the world’s second-largest economy as “the last big missing jigsaw” in the sector’s recovery picture.

But a full return to pre-pandemic levels may take some time given the possibility of China adopting a gradual approach to reopening and the presence of other uncertainties, they added.

In a major step towards reopening borders that have been shut for nearly three years, China said on Monday (Dec 26) that it will do away with quarantine requirements for overseas arrivals starting from Jan 8. Travellers will only need to present a negative test result taken 48 hours before departure.

The list of new measures issued by the National Health Commission also said current limits on the number of international flights between China and the world will be removed, while outbound travel for citizens will be resumed in an “orderly” manner as the country downgrades its treatment of COVID-19.

This marks the latest move by the Chinese government to unwind its strict zero-COVID regime after it abruptly dropped mandatory testing and lockdowns earlier this month.

“LAST BIG MISSING JIGSAW”

China was Singapore’s largest source of inbound tourists from 2017 to 2019, accounting for almost 19 per cent of total visitor arrivals in the year before the pandemic struck.

With that, Maybank economist Chua Hak Bin said: “China’s reopening and scrapping of quarantine rules is the last big missing jigsaw that will help boost (Singapore’s) aviation and hospitality sectors.”

Mr Mayur Patel, head of Asia at data firm OAG Aviation, echoed that: “As air capacity from China represents 10 per cent of the total capacity for Changi Airport, this (announcement) is significant for trade, tourism and connectivity for air traffic for Changi Airport as an aviation hub.”

Noting that passenger traffic at the airport hit 75 per cent of 2019’s levels recently, he added that a full recovery to pre-pandemic traffic “will require a complete reinstate of capacity from China”.

But this might “take some time” given the ongoing surge in COVID-19 cases within China and the likely absence of large tour groups in the initial stages after restrictions are eased, Mr Patel said.

Economists agreed, with Dr Chua pointing to limited flight availability and high air fares as possible factors putting a lid on the number of Chinese tourists in the short term.

“The jump and ‘revenge travel’ should be more visible by the second quarter of 2023,” he told CNA.

CIMB Private Bank economist Song Seng Wun offered a similar outlook.

“Given China’s size, it is really the final piece of the puzzle for a recovery,” he said. 

“But we went through this phase ourselves. When everything reopened, do you rush to go out or do you remain a bit more restrained for a while more? So I think we will probably see a more meaningful impact on the travel and aviation sector after the first quarter of next year,” Mr Song said.

A GRADUAL RECOVERY

Independent analyst Brendan Sobie reckoned that China’s reopening strategy will likely be “gradual”.

“Under that scenario, the recovery in Singapore-China traffic and international traffic to and from China overall would also be gradual. This is what we have seen so far with Hong Kong – and traffic between Singapore and Hong Kong is still well below pre-COVID levels,” the founder of Sobie Aviation said.

It also remains “too early to say when China may fully reopen”, he added.

“Note that even if quarantine restrictions are lifted, it is impossible to fully recover passenger traffic without also lifting testing requirements and any other COVID-related restrictions. This is what we have also seen in markets such as Hong Kong,” Mr Sobie said.

“I think China and Hong Kong will eventually get there but when that occurs exactly is hard to predict. And until that occurs, a market such as Singapore can’t recover.”

Singapore Airlines (SIA) has said it will reinstate its passenger service to Beijing from Dec 30, operating fortnightly every other Friday. This comes nearly three years after flight services between Singapore and Beijing were suspended on Mar 28, 2020.

Throughout the pandemic, SIA has been operating cargo-only flights to and from Beijing. It was allowed to upgrade one-way Beijing to Singapore services to carry passengers twice a week in late September.

Since late September, Scoot has gradually resumed flight services to mainland China. It now operates weekly flights to seven cities including Hangzhou, Tianjin, and Guangzhou.

Mr Patel said with the resumption of some flights between China and the rest of the world, it is “significant” that Singapore moves quickly to ensure that its connectivity with China is restored. But overall, flight capacity to China will resume with a “measured approach” in line with the pace of the broader reopening.

Likewise, Mr Sobie pointed out that the green light from Beijing to allow passenger flights from Singapore to Beijing is “just a small step in the gradual reopening”.

Flights between China and Singapore are currently at about 10 per cent of pre-pandemic levels, he said, adding that there remains “a long road ahead” before a full recovery.

Still, the resumption of more passenger services will come at an opportune time for SIA given how cargo demand, a bright spot that has supported the national carrier during the pandemic, is seeing signs of a slowdown, said Mr Song.

“Clearly, the peak in cargo demand is behind them. We are seeing shipments coming down, orders cooling off and global trade easing based on various purchasing managers’ indexes … In that sense, this is good timing for SIA.”

OTHER UNCERTAINTIES

Beyond China, the recovery of the aviation sector also hinges on other factors.

“How fast it goes from 75 per cent (air passenger traffic at Changi Airport) to 100 per cent would hinge partially on how fast China reopens and recovers, but we would also need non-China traffic to go from about 83 per cent to 100 per cent,” said Mr Sobie.

“There are other markets such as Indonesia that have obstacles that need to be addressed to achieve a full recovery.”

Other risks that may derail the aviation sector’s recovery include geopolitical risks in parts of Europe and Asia, as well as the risk of further monetary policy tightening resulting in a global recession next year, said Mr Song. 

The latter would weaken labour market conditions and in turn, cool pent-up travel demand – both in terms of leisure and business travel as people and businesses tightened their purse strings, he added.

Editor's note: An earlier version of this article said Scoot operates weekly flights to 18 cities in China. Scoot has clarified that it operates weekly flights to seven cities in China.