Podcast: Asia-Pacific’s Recovery And The Long Wait For China

As more COVID-related travel restrictions lift, airlines and airports across Asia-Pacific are seeing demand return. And they are also looking to new markets as China adheres to its zero-COVID policy.

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Rush transcript

Karen Walker:

            Hello everyone, and thank you for joining us for Window Seat Aviation Week Air Transport Podcast. I'm Air Transport World and Group Air Transport editor in chief, Karen Walker. Welcome on board. And this week I am joined by my colleagues, David Casey, editor in chief at Roots Magazine, and Chen Chuanren, ATW Asia Pacific and China senior editor. It's great to be with everyone and thank you for joining us.

            And this week, we're going to be taking a look at where things stand with the post pandemic recovery in air travel in the Asia Pacific and China markets. Now I say post pandemic, but of course COVID is unfortunately still with us. And the rate of recovery in terms of air travel demand varies considerably region by region. In the U.S., traffic numbers are close to or beyond 2019 levels. But that's mostly because all restrictions have been removed.

            Across Asia Pacific there's much more of a patchwork of restriction imposing or lifting, and that's very much reflected therefore in the travel recovery rate. As a result, IATA forecasts the airlines as a collective across the Asia Pacific and China region will post an almost $9 billion loss this year. And that will be the same year as the U.S. airlines are expected to return to profit.

            The Asian losses will be due in large measure, or at least influenced, by the situation in China, which has a strict zero COVID policy that has led to multiple mass lockdowns. That has, of course, strongly affected international air travel, with China's international borders essentially closed. Elsewhere across Asia, restrictions are lifting and people are flying. So you've got very different stories going on. David, can I start with you? You track the networks and new routes that are being created around the world, what are you seeing in particular in this region in the last few weeks?

David Casey:

Thanks, Karen. As you said, what we saw in Asia during much of the pandemic was the Chinese domestic aviation market boomed but international flights from China and other nations were severely impacted by border closures and quarantine measures. Things started to change in spring early this year, when many Asian countries started to reopen the borders, but this also coincide with the Chinese government imposing new lockdown measures, which again, hurt its domestic market. We're now in a position though where international capacity has started to accelerate for many countries in the Asia Pacific region. Although, as you said, the overall recovery does continue to lag in other parts of the world, such as Europe and North America.

            So in Asia Pacific, what we're seeing is that South Asia is really leading the way by some distance and international capacity here is back to more than 90% of 2019 levels. Southwest Pacific is next with international capacity about 55% of pre pandemic levels, and Southeast Asia is on about 42%. However, the real region that's trailing is Northeast Asia, and it's only on about 20% of 2019 levels. And as you said, this is largely due to the ongoing restrictions in China, Hong Kong, South Korea, and Japan.

            As we know, the zero COVID policy being pursued in mainland China and the various entry rules or quarantine measures in Japan and Hong Kong have really made them global outliers. In China, for example, I was looking at flight data provided by OAG earlier today, and there's just 181 international flights from the country this week. Now that compares to more than seven and a half thousand at this stage in 2019. Fortunately though, we are seeing sunlight at the end of the tunnel. I'm sure we're going to talk about some of the reasons why later, but there are signs that China, Japan, and Hong Kong are starting to gradually reopen the borders, which is prompting some airlines to reinstate international destinations that have been suspended for more than two years.

Karen Walker:

Okay. Chuanren, I'm going to really focus on one particular area. You are based in Singapore, and of course that's a nation that prides itself on a world class hub and airline, but one that also depends entirely on international traffic and was essentially brought to a standstill in the first year of the pandemic. Can you start by just telling us what's happening right now at Changi?

Chen Chuanren:

Essentially, everything's going very well in Changi, to be honest. Just a couple of weeks ago, they released their June figures and it has reached 2.9 million passengers for just June alone, and probably around seven million over the last three months. That is quite a significant increase compared to, of course, last year. Singapore airlines, I think a couple of days ago, also announced that they have crossed the two million mark for the first time since the pandemic. So again, it's due to the sudden relaxation of measures in Southeast Asia and most of the Asia Pacific region.

            And therefore, Singapore airport has been getting good numbers over the last months. And of course, they have announced that they are opening, reopening I should say, some of their terminals that were closed. Terminal two, which is undergoing renovation, is opening up partially to handle the surge in traffic. And terminal four, which is amongst the first to close, will be reopening in a couple of weeks time. So it is a sign that traffic is coming back to, nearly to pre pandemic levels, but of course, the Singapore government, the transport ministry, is cautious not to set targets too high. Because learning lessons from Europe, the U.S., there's a possibility of a man power crunch and therefore they want to do it right and do it well for the first time. Therefore, they are not promising too much even though numbers have easily crossed 50% of pre pandemic levels.

Karen Walker:

So good signs there. And as I said earlier, obviously when it comes to Singapore, everything is international. Can I ask you to just clarify, exactly what is the other restrictions at the moment in Singapore, either to come in to Singapore or to transit through?

Chen Chuanren:

Yes, no more restrictions anymore. It will be more of the destination they are flying to. For example, if you have to fly to South Korea, what you need now is a pre departure test. It can be a ART or PCR, then you have to get a PCR on arrival in South Korea. But for anyone coming to Singapore, you're free to come in as and when you like. So from a Singapore point of view, nothing you have to do, you just have wear a mask when you are indoors and you are free to go.

Karen Walker:

And that's a good point, that's what I was actually just trying to really make that correlation, that the difference there... And you've just given a really good example. The difference there is you can go in to Singapore without needing the testing and quarantine types of situation, and that has freed up that market quite quickly when it started. But you've just pointed out that if you're going on to South Korea, then you're going to have to abide, of course, by ongoing restrictions there. Which brings me back to... David, you touched on this so I'm going to just ask you. We are now seeing, I think, quite a difference between that Southeast Asia pickup and Northeast Asia, the countries like Japan, Hong Kong and South Korea. We'll get into China more specifically in a minute. But is this really all about the ongoing restrictions in those regions?

David Casey:

I think it is. I think if you look at Japan, for example, although the country did open up to international travelers in June and it did ditch its quarantine rules, visas are still required and tourists can only visit if they're part of a tour group, and that's obviously deterring many overseas tourists. As well in Hong Kong, it started to allow international tourists in May, but it maintained a minimum seven day quarantine. And that was shot three days early this month, but it's still adding the burden for international travelers. And so it's understandable that they're looking at destinations that are restriction free.

Karen Walker:

Yeah. It's interesting, I think when it comes to quarantines, whether it's two days or 20 days, I don't think people care about that. They just don't like the idea of a quarantine and the uncertainty of that. So talking of quarantines, let's get back to China specifically. As I mentioned earlier, Beijing now has a, or has long had this zero COVID policy. As a result of that we've seen major municipal areas and cities, including all of Shanghai, have been under long lockdowns. Very strict lockdowns. And even as they lift it, some have come back, cropped up. They see a few cases and then a place gets locked down very quickly. David, can you just tell us about that, the most recent example of a tourist area where they came in with a lockdown?

David Casey:

Yeah, sure. We saw in Sanya, which is often known as China's Hawaii, there were a few hundred COVID cases confirmed there and the authorities decided to impose a lockdown. And I think that affected about 80,000 Chinese tourists who were actually stranded there. So all flights and trains from Sanya were canceled and tourists had to present, I think it was five negative PCR tests over seven days before they were allowed to leave. So obviously given instances like this, I don't think there's going to be too many international tourists that want to visit Chinese destinations like Sanya in the near future, because they could be stranded and get caught up by these restrictions.

Karen Walker:

Exactly. It's certainly concerning for tourists, but I would say even more so for businesses. Corporations are unlikely to feel that they can send people over if they suddenly get trapped over there. Now, let's talk about Hong Kong a little here. Chuanren, what's happening there? CAFE, I believe, is looking to try and get the... the restrictions have loosened, but they're trying to get more done. Is that correct?

Chen Chuanren:

Yeah, that's right. Right now the quarantine restrictions in Hong Kong has relaxed. It has changed to three days in hotel and four days what they call a stay home medical surveillance. So, that has of course been welcomed by many, because you just have to stay three days in a hotel and you will be free to go out on your own, in your own home. And that certainly has been welcomed there. And of course, they are very foolish about the recovery of the Hong Kong market.

            I spoke to the CEO of the [inaudible 00:12:07] during the ATN, and he say government is more aware of these medical situations right now. It's able to understand how the virus spreads, and therefore the Hong Kong government is more willing to let people in to the territory. Therefore, they are ramping up capacity. The recent operating numbers shows three to four percent jump in terms of passenger numbers. And again, they have plenty of loans that are untouched by the Hong Kong government, so they are very confident that the numbers will rebound very quickly for them.

Karen Walker:

So if you look at it from the other way around, it's where the Chinese people go on vacations in particular. Those are big markets for a lot of countries in this area. A lot of countries across Asia have become tourist destinations for the Chinese, and of course that market has dried up for them. Chuanren, where are some of the big, who's most affected by that?

Chen Chuanren:

The Chinese, they like to go to nearby Asian countries. For example, Cambodia, South Korea, Singapore to an extent. A good example is South Korea. There's this place called Myeong-dong in central Seoul that sells cosmetics and makeup products for the Chinese. And I was there just a couple of weeks ago and all of it has been shut, because there's no Chinese tourists to sell them to. But I mean, nonetheless, the Chinese spending power has been very important to many markets, some of which even has left China to stay in countries such as Cambodia, just to avoid the lockdown in China.

            But I mean, having said that, it's also important to understand that, I'm not sure whether other airports are ready to accept Chinese tourists, even though China is open. I mean, if you look at what is happening around the world, they are really is struggling to handle passengers without China. Can you imagine if China really opened up, you'd have millions of passengers coming out. I really have my doubts whether this airport system will handle them, the influx of Chinese tourism visitors.

Karen Walker:

That's an interesting point, that as you say, particularly in Europe and across Europe and the UK and the United States, they've almost had, it's a good problem to have, but they've got a real problem of the ramp up is happening too fast. People are coming back and the infrastructure and the system isn't ready. So maybe this is actually sort of helping those places. But meanwhile, I get the impression that, of course, the Asia Pacific carriers and countries are clearly looking for alternatives for as long as China, the China market, is so restricted. David, what are you seeing in there? Where are people looking to, to open new routes or increase frequencies?

David Casey:

Well, you're right. We've seen that carriers are turning their attentions to markets that have no restrictions. Many allies in the past have relied on Chinese traffic flows, but they're now pivoting to new source markets to ensure they can take advantage of the recovery. India in particular has been a focus, and we've seen carriers in Vietnam, Thailand, Australia, look to this market for growth. If you look at Vietnam, for example, the number of routes operating to India at this time in 2019 was actually zero. Now there's 10. We've seen VietJet open eight of those and they're talking about opening four or five more.

            Vietnam Airlines as well has launch flights from Hanoi and Ho Chi Minh City to Delhi. So in addition, we've seen some real growth in non-Asian markets as well. If you look at capacity between India and Finland, for example, now that's up by 150% compared with 2019, because Finnair relied on traffic to China and Japan. And with those markets closed, it's now pivoted, moved capacity in to India. And it's returned to Mumbai after a 13 year absence. So it's been interesting to see that carriers, they've not sat back and waited for China to open. They've looked at new markets, they've looked at where capacity and where demand is, and they've therefore put routes and frequencies on to those countries.

Karen Walker:

So this is an opportunity for Air India, IndiGo, the local's carrier. There is definitely an opportunity I would imagine, for those airlines, but also for the cities and destinations in India. You've just mentioned too, Vietnamese Airlines, David. You were both the Routes Asia in June, which was in Vietnam. Chuanren, what were you hearing from people there about the situation and focus areas for growth?

Chen Chuanren:

India has been mentioned many, many times by the Routes Asia delegates, and we have a very strong delegation from Air India, Air India Express, and Routes Asia as well. And even the host city, Da Nang, the organizers, they say Indian market is a very important one for them. They even had a very large wedding contingent coming to Da Nang, which at least two to three resorts has been sold out just to support this wedding contingent. This simply shows the size and the spending power of these Indian tourists.

            But I think a interesting point is that, from the Da Nang authorities, that there are so many of their infrastructure and their businesses has invested in Chinese tourists or Korean tourists. And it's not easy to suddenly flip, turn overnight, to cater to a new market, because you have signs, you have restaurants, they are all catered for the Chinese or Korean market. And that was a real challenge to even to the local tourism agencies. So I think famous cities have to think otherwise how to diversify the tourism of this, so to speak, in the near future.

Karen Walker:

Yes. So China of course has had this long term aviation vision, and up until the pandemic, was incredibly successful. In fact, you could even argue that they were the most successful in the first year of the pandemic in 2020. The Chinese domestic market for the first time, in size, overtook the U.S. market. And they've invested massively in their infrastructure. New airports, incredible new airports everywhere, and in their airlines. They've really moved on that and they've recognized that as an important part of their overall economic growth.

            It's been interesting that Beijing, which had this 5.5% GDP growth target, has stopped talking about that 5.5% the last few months. And that's because it knows that it's under economic pressure for as long as it doesn't get its airline, air transport business back to those original, to those earlier numbers. It probably won't get back to that overall economic growth. So the question then is, is China leaving it too late to turn this around? It's gone on a long while with these COVID restrictions. At some point, is it going to not be easy to get those businesses and tourists back? What do you think, David?

David Casey:

I think there may come a point when the Chinese government will have to relax measures furthers, but I don't know when that will be. Airlines and airports made heavy losses in 2021 and the country's combined aviation sector made losses of about $12.5 billion. And as you said, the overall economy has contracted sharply in the three months to June. We are seeing gradual signs that rules may start to be relaxed. Earlier this month, Beijing actually shunned the period, the suspension period for inbound flights carrying COVID passengers, and it also reopened Beijing Capital Airport for international flights. So under those new flight rules, incoming flights that have five positive COVID cases, or 4% of passengers, will face a reduced one week suspension. Previously, if a plane brought in five infected passengers, regardless of the size of the aircraft, then all flights on that route by that carrier will be suspended for two weeks.

            That change decreases the likelihood that international services with large volumes of passengers will be temporary halted. So we are starting to see some carriers respond to that on international routes. I'm in the UK, and Air China earlier this month was the first back in to the market restarting flights from Beijing Capital in Shanghai to Heathrow. China Eastern as well has followed by resuming London, Shanghai. And China Southern as well from Guangzhou.

            And there's been similar resumptions elsewhere in Europe. We've seen flights restart from Beijing to Paris, Madrid and Vienna, but frequencies at the minute are extremely limited. Many of the services are only carrying outbound passengers as well, but it is progress considering what we've had for the past two and a half years. When further progress will be made, I really couldn't say at this stage.

Karen Walker:

And Chuanren, you do track the China market very closely, do you feel that it will ultimately come back? And if so, when?

Chen Chuanren:

Definitely. I think it's just a matter of timing. As we know, there's a lot of rumors as to when might China relax. It could be a certain political event in October, it could be other factors. But I just want to quote the director general of Association of Asia Pacific Airlines, AAPA, Subhas Menon. He said, "China is just like a elephant. It may be slow together, but once it start moving, it's unstoppable." I still have confidence in the Chinese market, regardless of the situation. And just hope China will one day come to the realization that COVID-19 or the Omnicron variant will be here to stay for a long time and they have to live with it forever.

Karen Walker:

Which is frankly, what we are seeing with the rest of the world. Certainly here in the U.S., very, very much a sense of moving on. David, Chuanren, thank you so much for joining me today, I always love working with you and chatting to you. And thank you also to our producer, Guy Ferneyhough, who is based in the UK like David, so we really are an international team. Thank you to our listeners for joining us. And a quick note that we will be taking a break next week as part of the summer schedule, so please tune in to us next time on September the first on Apple Podcasts or wherever you listen. And in the meantime, I hope you might still have some vacation ahead of you, so do enjoy your break too. This is Karen Walker signing off from Window Seat.