Hard Times in the East

The inclination to travel across time zones to do business in some of the world’s fastest-growing economies still exists. What is more it must not be forgotten that, before the current downturn, Asia-Pacific was the most rapidly expanding aviation arena in the world. (HKIA)

2009 has been a tough year economically, nowhere tougher than in the Asia-Pacific region, as Stephen Vaughan explains.

The inclination to travel across time zones to do business in some of the world’s fastest-growing economies still exists. What is more it must not be forgotten that, before the current downturn, Asia-Pacific was the most rapidly expanding aviation arena in the world. (HKIA)

Half-year results released by the Asia Pacific Airlines Association, which comprises 16 major airlines in the region, showed a steep decline in passenger numbers.  For the first six months of 2009, total passenger traffic fell by 11.5% to reach 63.8 million, compared with 72.1 million during the same period last year.  Airlines in the region are expected to post losses of $3.3 billion this year, more than any other aviation market in the world.  That Asia-Pacific has been more affected than the rest is attributable not only to the worldwide recession but also, in a region still scarred by the memory of SARS, to a reluctance to travel because of the perceived risk of swine flu.
“Asia Pacific has been affected worse by the economic recession than even the United States and Europe,” says Andreas Schwimm, Director of Economics for the Airports Council International (ACI).  “Japan and Korea have suffered enormously, with traffic figures down by as much as 20 percent both internationally and domestically.  Thailand, Singapore and Hong Kong have experienced similar downturns.”  David Bentley, Director of international consultancy Big Pond Aviation, concurs with Schwimm.  “2009 has been a near-disaster for the Asia Pacific region,” he says.  “This has been reflected in often dramatically falling traffic and cargo volumes.  Even well-established carriers such as Singapore Airlines, Japan Airlines and Cathay Pacific have felt the pinch.  Consequently many airport projects have been put on ice.”  With Japan remaining mired in recession and the formerly thriving economies of China and India cooling a little (see page 14), this should come as no surprise.
How does one sum up airport activity in a region consisting of over 15 countries, each with its own degree of affluence, resilience and government intervention?  The answer, of course, is with some difficulty.  Broadly speaking, however, it can be narrowed down to ‘China – and the rest’.  Remove from the equation the ongoing aviation revolution within the People’s Republic of China, and Asia-Pacific would be showing much poorer results than it is.  With more than one third of the entire region’s traffic, China is the fastest-growing aviation market in the world and the principal reason why it is impossible to generalise about the impact the worldwide recession has had upon the countries within the region.
 
China
“China is a seller to the world,” says Angela Gittens, Director General of the ACI.  “At the moment they cannot sell as much.  As a result, both freight and international traffic is down.  However the country has a very strong underlying structural economy and as a result of other changes within the Chinese economy and society in general, domestic travel is rising dramatically.”
“China is a seller to the world. At the moment they cannot sell as much. As a result, both freight and international traffic is down. However the country has a very strong underlying structural economy and as a result of other changes within the Chinese economy and society in general, domestic travel is rising dramatically.” Angela Gittens, Director General of ACI.

China has been enjoying double-digit growth for many years and despite the difficulties of 2009 the World Bank predicts that it will expand by seven to eight percent over the next two years.  Although it may be surprising to learn that Chinese international traffic was down by 17%, to 6.7 million, in the first half of the year, this figure is overshadowed by the domestic travelling boom taking place in mainland China.  During the same period 100 million passengers travelled domestically, up almost 20% on 2008.  This translates to an overall increase in traffic of 16.4% for the first half of 2009.
“If you compare this summer to last there are a few anomalies,” says the ACI’s Schwimm.  “Last year there were blizzards, the Sichuan earthquake and the Beijing Olympics, all of which slowed up passenger numbers considerably.  So we are seeing some catch-up in 2009.  Additionally, the stimulus package of $800 billion put in place by the Chinese government came on stream in February.  This has kept people employed and personal income high, and therefore people are travelling.”  Certainly 2009 has been a good year for Chinese aviation.  Director of the Chinese Civil Aviation Authority (CAAC), Li Jiaxiang, stated China’s aviation industry has achieved a: “massive recovery,” generating $1.2 billion in profit so far this year, compared to a full year loss of $4.1 billion in 2008.
China’s airport development plans are highly ambitious.  Based on the assumption of an average growth rate of 11% until 2020, the CAAC plans to create another 100 airports in the country over the next ten years, with investment over this period expected to exceed $60 billion.  This will mean a total of 244 airports operating in China by 2020, including 13 with an annual capacity over 30 million and another 16 with capacities ranging from 10 to 30 million.  China’s National Civil Airports Distribution Plan calls for 80% of the Chinese population to be within 62 miles of an airport, or an hour and a half’s drive.  Within five years it is projected that China will become the second largest aviation market, second only to the United States.
Speaking at the recent ICAO World Bank conference in Beijing, Mr Huang Gang of Beijing Capital Airport outlined China’s hub-based airport development plans of the future.  Huang stated the need to view Beijing, Shanghai and Guangzhou as the three largest and principal hubs, Kunming and seven other cities as regional hubs, Nanking and a further eleven cities as regional airports, with the rest categorised as small airports.  “This brings Beijing’s hub development onto a national strategy level,” said Huang.  “In the future, the CAAC will plan flight frequency between the three large hubs every 30 minutes, frequency between large and regional hubs every 90 minutes and frequency between regional airports and large hubs every 90 minutes to two hours.”
The ACI’s Andreas Schwimm describes Japanese aviation as having suffered “big time” during the current economic crisis, and he is not mistaken. Arrivals to Japan in June of this year totalled just 424,200 – a 37.7% reduction year-on-year, while Japanese overseas travellers registered just over 1.0 million, down 21.3%. For the first six months of 2009 Japanese passenger numbers were down 11% on the previous year. (ACI)

The addition of Beijing’s enormous third terminal in time for last year’s Olympics may have been a highlight, but even with three terminals, the existing capital airport, with a capacity of 76 million passengers, is expected to be full by 2015.  Earlier this May, after years of deliberation, Lixian town, part of the Daxing district in the south of Beijing, was announced as the location for the city’s proposed second airport because of its terrain, climate, infrastructure and air traffic control conditions.  Construction is planned to begin in early 2010 and the airport, proposed as a hub that can handle 60 million passengers, should be operational by 2015.  The idea for the airport emerged in 2002 after Beijing was named as host for the 2008 Olympics, but the following year it was decided to expand the existing airport to relieve the pressure at the time of the Games.
Along with the plans for Beijing’s proposed second hub, developments, upgrades and brand new airports are being given the green light up and down the country.  Shanghai Pudong International recently began to expand of its first terminal.  Scheduled to be completed by the end of this year, the airport will expand the terminal’s international departure immigration hall and domestic passenger clearance area.  Other plans include the acceleration of construction at Chengdu Shuangliu International as it vies to become Western China’s largest airport hub, the proposal from Chongqing Provide for the development of a $120 million fifth airport, and the announcement in June that Sichuan province will have 14 new airports in situ by 2012, with a total capacity of 47 million passengers.  China, it seems, is ploughing on regardless.
Let us now examine a handful of other countries in the region and see how they have coped in the face of the most serious recession in three generations.
 
Japan
Traditionally it is one of the richest countries in the world, but in January of this year Japan’s exports were 46% down on 2008 – a phenomenal drop for a country so heavily dependent on overseas sales of its products. Japan is used to economic setbacks.  However, strong exports have tended to disguise the weakness of Japanese domestic consumption: now that prop has been kicked away, growth has been sliding alarmingly.
In the face of the global economic downturn, the Airport Authority of Hong Kong launched a HK$450 million relief package to assist airlines and other operators at the airport. (HKIA)

The ACI’s Andreas Schwimm describes Japanese aviation as having suffered: “big time” during the current economic crisis, and he is not mistaken.  Arrivals to Japan in June of this year totalled just 424,200 – a 37.7% reduction year-on-year, while Japanese overseas travellers registered just over 1.0 million, down 21.3%.  For the first six months of 2009 Japanese passenger numbers were down 11% on the previous year. And along with a depleted world economy, swine flu has significantly affected travel to and from Japan.
Perhaps the most distressing aspect of a depressing period for Japanese aviation is the recent news that Japan Airlines (JAL), Asia’s largest airline, is to cut thousands of jobs and suspend dozens of domestic and international routes as it battles mounting losses that have made it a target for rival bids from overseas carriers.  JAL has said it will suspend 29 domestic routes and 21 routes by March 2011 in a rescue plan put forward to the transport ministry.  As the company attempts to cut operating costs by 30% over the next three years, 6,800 redundancies – or 14% of JAL’s entire workforce – will be made by March 2012.
Japan is used to economic setbacks. However, strong exports have tended to disguise the weakness of Japanese domestic consumption: now that prop has been kicked away, growth has been sliding alarmingly. (Narita International Airport)

JAL is under increasing pressure to carry out radical restructuring measures after securing ¥100 billion (US$1.1bn) in government funding and hopes to cut costs by ¥53 billion (US$0.59bn) this year and ¥100 billion next.  The carrier has also been struggling to put together a recovery plan to submit to the transport ministry, which is looking after its restructuring after the state backed a billion dollar loan.  The carrier is seeking another $2.7 billion in state funds, but lenders are reluctant to offer new loans without further restructuring and more government involvement.  In short, Japan’s aviation sector has been profoundly affected by the current worldwide recession.
 
Thailand
Thailand, with its renowned tourist industry and idyllic weather, has suffered less than some of its neighbours.  This, though, is unlikely to be due to any cloudless skies.  Motivated by the reduction of landing fees by 30%, and with charges waived for car parking of less than 24 hours to the end of 2009, passengers are showing signs of returning to the principal airports of Phuket and Bangkok.
Traffic at Thailand’s airports rose by 2.5% year-on-year to 4.6 million in August.  The return to growth follows a series of sharp falls in monthly traffic volumes during 2009.  Passenger numbers January to August were 34.5 million, down 12.5% on the same period last year.  As with the entire Asia-Pacific region, international traffic has fallen.  Domestic passenger volumes keep rising, however, and went up by 16% in August, to 1.9 million.  Despite suffering the most severe effects of swine flu in Asia, with 4,000 confirmed cases and 24 deaths to date, these numbers suggest that a recovery may be underway.
 

The first six months of 2009 saw a 7.6% fall in passenger numbers at Singapore’s Changi Airport. (CAAS)

Singapore

The first six months of 2009 saw a 7.6% fall in passenger numbers at Singapore’s Changi Airport.  As the global economic downturn took hold, the glowing reputation of Changi took a hit in a country that is unable to rely on any kind of domestic aviation market – the saving grace for some of its neighbours.  In attempt to lure traffic back, landing fees have been reduced by 25% until the end of 2009.  Singapore Airlines (SIA) has undergone a fall in capacity following the planned reduction in frequencies and termination of services to Los Angeles, Osaka, Amritsar and Vancouver.
Although traffic at Changi attests to the severe weakening of the global economy, and a further reduction in capacity may mean a sacrifice of market power to Dubai, ‘green shoots’ are beginning to show through.  Though Changi Airport Group was not forthcoming on numbers, it appears that August saw the airport’s first year-on-year rise, suggesting that the downward trend in passenger and cargo traffic that began in the middle of 2008 may already reached its nadir.
 
Malaysia
Aside from China, the only Asia-Pacific country that has witnessed an increase in passenger numbers during 2009 is Malaysia. A 1.2% rise to 24 million passengers, however small an increase, is still an improvement, and can be attributed to various initiatives undertaken by airlines and authorities to stimulate demand.  At Kuala Lumpur Airport, a 50% discount in landing fees has been introduced, to last until March 2011.  On top of that, Malaysian Airlines (MAS) has introduced various initiatives and cost-cutting schemes.  As MAS Managing Director Datuk Seri Idris Jala remarked in August, “We have undertaken aggressive plans to attract people to fly with MAS.”  The most recent initiative is the ‘Asean Pass’, a set of four prepaid ticket vouchers that enables passengers to travel on a maximum of four flights within six Asian countries, for $229 in economy class and $729 in business.  The tickets can be
purchased through MAS agents in Asian countries – on condition that travellers fly to or from Kuala Lumpur first before flying to other countries within the ‘Asean’ region.  As Idris remarks: “The idea is to get more people to come to Kuala Lumpur before flying to other destinations in the region.”
 
Conclusion
It is never pleasurable riding out difficult times – and times have never been more difficult for aviation in Asia-Pacific.  Yet, by definition, a crisis must pass, and there are already vital signs, from passenger numbers and the world economy as a whole, that the worst may have passed.  The inclination to travel across time zones to do business in some of the world’s fastest-growing economies still exists.  What is more it must not be forgotten that, before the current downturn, Asia-Pacific was the fastest-growing aviation arena in the world.  In September, Boeing predicted that the region will become the world’s largest aviation market over the next 20 years, and will invest more than $1 trillion in new airplanes, thereby tripling its current number to over 11,000.  “Twenty years from now, more than 40 percent of the world’s airline traffic will begin, end or take place within the Asia Pacific region,” declared Randy Tinseth, Boeing’s Commercial Airplanes Vice President for Marketing.  “We do expect the growing Asia markets to lead the industry into recovery.”