business

2022 brighter year for airlines to rebuild capacity

KUALA LUMPUR: 2022 is expected to be a recovery year for the local airlines to rebuilding capacity despite the ongoing challenging environment with the possible emergence of Covid-19 variants.

Aviation experts said the outlook for Malaysia's aviation sector this year would likely be much brighter than 2021 and 2020, but the situation could remain challenging.

Sobie Aviation consultant and independent analyst Brendan Sobie said Malaysia's domestic market could recover fully in 2022 from a demand perspective, but overcapacity is likely, impacting yields and profitability.

"The international market could take at least a few years to fully recover, prompting the existing competitors to rely more on domestic, exacerbating the overcapacity situation," he told the New Straits Times (NST) recently.

Sobie said a new competitor might also enter the market, leading to an even less 'rational' pricing and capacity environment.

"Capacity discipline would be sensible but is unlikely given the highly competitive environment," he added.

International Civil Aviation Organisation (ICAO) air transport officer Rosida Ismail said most regions began to gradually open their borders due to increased disease containment measures and implementation of risk mitigation action plans related to the pandemic.

"Airlines may wish to seize this opportunity to rebuild their capacity. However, airlines' expansion strategy should be based on sustainable growth and resilience towards any similar challenges approach basis," she told the NST.

Rosida said airlines' network strategy should provide appropriate air travel solutions for all passengers' ability to travel.

These include the vaccination status, competitive and reasonably priced services, and reliable services in terms of service delivery performance (on time, justifiable cancellation, etc).

Association of Asia Pacific Airlines (AAPA) director general Subhas Menon said the airline industry could continue to deploy more international flights by implementing planned roadmaps to ease travel restrictions and border closures.

"It is also important that governments streamline border rules and measures as well as pursue policies consistent with the idea of living with the virus rather than Covid-Zero strategies," he told the NST.

As of the end of November 2021, demand for international air travel in the Asia Pacific was still around 5.0 per cent of the 2019 level, according to AAPA statistics.

He said earlier indications revealed that demand would gradually improve to 30 per cent to 40 per cent of 2019 levels in the first quarter (Q1) of 2022.

"Hopefully, new restrictions imposed in response to Omicron are temporary, and measures are streamlined to increase demand which will support the momentum to rebuild airline networks," he added.

Frost & Sullivan aerospace and defence consultant Shantanu Gangakhedkar said boosting domestic operations and developing capacity and capability for cargo operations could expedite recovery.

"A key trend expected to develop across the region is domestic leisure demand will likely be the first to come back up given the high pent up demand," he told the NST.

Shantanu said airlines should plan their fleets, destinations, schedules and operations to suit this demand while maximising operational efficiency.

"Domestic passenger demand reached about 45 per cent of 2019 levels as of December 2021, which will continue to grow while international travel currently is minimal given the restrictions."

He said the recovery has been slow in the Asia Pacific, given the ongoing restrictions in terms of international travel and varied restrictions and regulations among countries in the region.

"It is expected that overall the domestic passenger demand in terms of revenue passenger kilometres' will reach about 70 per cent of 2019 levels by the end of 2022 and reach about 30 per cent of 2022 levels in terms of international travel."

He said airlines might also need to closely watch how variants like Omicron impact and be agile and flexible in quickly adapting to it and making necessary changes to minimise losses.

Shantanu said demand is expected to reach 2019 levels by Q1 of 2023 at the earliest, or at least for the next 18 months, as airlines in the region could face capacity issues.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said airlines must have a sustainable financial position and offer routes and capacity according to market demand.

"They also need to stimulate demand with attractive fares, an effective tool to get the customers back in the air," he told the NST.

Hans said airlines should be careful in providing too much capacity into the markets, especially those under financial pressure, as this could drive higher costs.

"Airlines with a strong balance sheet and well capitalised will take advantage on to increase market shares.

Most Popular
Related Article
Says Stories