Listen in as Aviation Week Network's Karen Walker speaks with the director general at the Association of Asia Pacific Airlines, Subhas Menon, ahead of the organization's annual Assembly of Presidents in Singapore.
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Rush Transcript
Karen Walker:
Hello everyone and welcome to Window Seat, the Aviation Week Network Air Transport Podcast. I'm ATW and group editor-in-chief Karen Walker, and it's great to have you on board.
This week it's my great pleasure to be joined by someone with a wealth of knowledge and expertise in the airline industry in general and the Asia Pacific region in particular. So a very warm welcome to Subhas Menon, the Director General at the Association of Asia Pacific Airlines, or AAPA. Subhas, it's great to have you and thank you for joining us today.
Subhas Menon:
Thank you, Karen. Very nice to meet you again.
Karen Walker:
You're speaking from your Singapore base where AAPA will hold its 67th Assembly of Presidents in November, November 9th and 10th, and that this year will be hosted by Singapore Airlines. I'd like to sort of just talk a little bit about the big topics that are expected to be on that agenda. Maybe we could just start off, if I may, on AAPA has released some of the latest traffic figures for airlines in the region and for the most part it's pretty good news. We all know that the extended pandemic lockdowns in some parts of this region slowed recovery relative to some of the other regions, but the numbers are looking really much healthier now. So can we start with you just talking me through some of those highlights please?
Subhas Menon:
Yes, Karen. Well, first and foremost, I think we should take a global snapshot first. So I think IATA released their figures also about the same time as ours, and total traffic globally actually rose by about 28% and global traffic is now at close to 100%, about 95% of 2019 levels. International traffic actually climbed 30% globally, okay? So that is the backdrop. And if we look at Asia Pacific, Asia Pacific international traffic is now at about 76% as of August of 2019 levels and growth is actually very strong, in fact stronger than the rest of the world because of course we have a lot of ground to make up.
And Asia Pacific has doubled its traffic from 2022. Internationally, I would say domestic travel is more or less above 2019 levels across the board, whereas international traffic is still at about three quarters of 2019 levels so still a ways to go. If you look at the ticket sales for forward bookings into 2024, domestic travel is really racing ahead of 2019 levels whereas international travel, I would say, would, going into January, probably about 90% of 2019 levels so not far to go.
Karen Walker:
Excellent. Okay. So by and large, I would say that the airline executives that will be coming to the assembly will be in a pretty optimistic mood given those bookings especially. Is that fair to say?
Subhas Menon:
Yes, I would say so. Of course, air cargo is not tracking as well. Air cargo was doing very well during the pandemic actually. The demand for air cargo was much higher than 2019 levels and in 2022 also air cargo was doing reasonably well. But in '23, air cargo has been on the decline. This is because there has been a shift in exports from goods to services. I guess during COVID, people were buying a lot of things which they don't need. So they were boosting air cargo, whereas that's not the case and people are now choosing to spend on tourism-related activities, air travel, dining out, entertainment, that sort of thing. So cargo is doing not so well, but I would say by August the decline is sort of moderated. It's just 1% less than 2022, so not too bad.
And as the global economy stabilizes and manufacturing picks up speed and inventories that have been stored up during the COVID years, especially in China, if these are drawn down, I think air cargo will also get back on the field. But you're right, I think overall it's an upbeat mood for the Assembly of Presidents. Passenger revenue is about 80% of total revenue. So cargo being only 20% has a lesser impact on the overall picture. And also I think the airlines are now beginning to record operating as well as net profits. So generally I would say it's quite optimistic.
Karen Walker:
Excellent. So we're really seeing what's happening in this region mirror what happened elsewhere as restrictions were removed and borders reopened. I think we're seeing the three key things. First of all, people really wanted to travel, so the demand was there, came back, and then first came back domestic and then international. As that happened in some other regions, we then also then saw some of the infrastructure and operational issues raised like air traffic control congestion and labor shortages at airports and security places. Has that happened? Have there been those sorts of issues across Asia Pacific?
Subhas Menon:
There has been some of that, but not to the same extent as we have seen in Europe and America. But I would say what probably concerns our chief executives really are supply chain issues, which are delaying the delivery of new aircraft as well as components, spares and parts required for maintenance and repair. And without exception, most of them are saying that this is really dragging the chain for them to be able to put back as much of the capacity that was grounded during COVID as they would like. So I think that is going to be a major concern. I think recovery can be a given. So I think the chief executives now would be training their guns on growth and profitability.
The Asia Pacific region was expected to triple in volume before the COVID hit us so I think they will be very keen to get back on the growth trajectory and also to have consistent profits and profitability will be a major concern. Supply chain concerns of course are there as well as, I would say, sustainability because that is also a given. I think if you want to talk about growth, you have to talk about sustainable growth. And I think all the chief executives know how important it is to get back on this horse. So that would also be a concern. And I would say yeah, there's a regulatory overload.
If you look around the world, I think governments, especially at transport regulators, they sort of got into the habit of making a lot of rules during COVID, so what I see is a bit of a COVID hangover. It is a regulatory overdrive. A lot of regulations coming out, whether you're talking about consumer protection or you're talking about slots, you're talking about taxes and fees and surcharges. There's a lot of it and it's not region specific. It is happening across the board. So I think all these things are really occupying their minds.
Karen Walker:
I love that phrase, a COVID hangover. I'm going to borrow that from you in one of my articles, it's actually a really good way of describing what's happening. And you're right, we've seen it in previous crises that have affected this industry that all these rules come in and some make sense a lot don't, but the real concern is that they tend to stick, that people don't remove them afterwards, long after the, even if there was a need sort of thing. So I think that's an interesting aspect of this. Can I just pick you up there on one of the issues that you just mentioned there was airport slots. That's something that AAPA, I'd say advocates for the region for its members. You've recently joined forces with some other regional airline associations urging governments worldwide to ensure there's a global alignment of slots, basically in complying with something that's known as the Worldwide Airport Slot Guidelines. And I think this sort of fits with what you've just said where post pandemic, some people are going off and doing their own thing now. Can you just summarize why that is important?
Subhas Menon:
Well, I think it is the predictability that airlines need in order to maintain the operations as well as grow the operations as scheduled airlines. They have to announce their flights, new routes, as well as additional frequency well in advance, and they have to operate on a regular basis. The frequency is usually operated on the same day of the week at the same time of the day, that sort of thing. So predictability is very important, and when governments decide to go off on a tangent and do their own thing, this predictability is lost. I'll give you a good example. It's the European Union's 80/20 slots rule. Of course we understand why they need it within Europe, but when you apply the same rules to international airlines operating on third country rules, it also impacts on the bilateral commitments the European Union has with other countries of the world.
And as you know, the EU has just concluded a comprehensive agreement with the ASEAN region. They're pursuing an agreement with India and other parts of the Asia Pacific region. So if you have the traffic rights, but you don't have the slots, it doesn't come through very much. So there is a big impact. The other thing is that there could also be a cost impact because some governments are now trying to introduce a bidding system also to charge more for peak slots. So this also has a big impact on airline operations because as you know, the margins of this industry are very, very thin. So it has a big impact.
Karen Walker:
It's interesting, again saying about the European Union, to be honest, there's a lot that I personally think is a little bit crazy going on in Europe when it comes to aviation right now. And you mentioned sustainability, of course. No conversation in this industry is complete without talking about sustainability. And of course that will be an important topic at the assembly too. I was in Madrid not so long ago for the IATA world, it was their first world sustainability symposium, and there were a lot of airline people from all over the world, including the Asia Pacific region. So it was quite interesting to just actually have them all in the same room and hearing the different challenges and things that are going on when it comes to sustainability and reaching the industry's commitment to be carbon net zero by 2050. That is a very tough target. Sustainable aviation fuel or SAF is a key to it and is in desperate short supply. What are the key things in the Asia Pacific region relative to the challenges on this?
Subhas Menon:
Well, I think the biggest challenge is supply. Supply of SAF. And the main challenge is that we don't see any major projects coming up in the Asia Pacific region. Of course, the startups brave source that they are, are doing their very best [inaudible 00:13:11] for instance. But if you really think about it, you need 450 million tons of SAF by 2050, just these few startups are not going to move the needle. We need the oil and gas majors to get into the act. So supply is a main issue. Of course, the fuel suppliers say, oh, they don't have an indication of demand, so they don't know how much to produce. But to me that doesn't make a lot of sense because the airlines need this sustainable aviation fuel. Today the fuel prices are rising. That doesn't stop the airlines from using the fuel to operate so they will just operate whatever fuel that is necessary for them to keep their schedules going.
And it's a philosophical issue. And sustainable aviation fuel is the only measure for international operations that will make a difference because all the other three pathways will not really move the needle. So you need SAF, and so there's no question of demand. The demand is there. I mean, airlines don't operate flights or increase frequency by first getting a confirmed idea of how much demand is. They just operate the flights. Supply begets demand. So I think that is the biggest issue supply. And the other problem, the Asia Pacific region is that the governments are not really getting behind the aviation industry.
Of course, Asia Pacific has a lot of feedstock, even though the traffic share of Asia Pacific is about 35% in terms of feedstock, Asia Pacific has close to 40% of the total feedstock for SAF. So that's not the problem. But we've got to get this feedstock into oil refineries and into airport fuel farms for airlines to be able to take advantage of it. So we need government policies, regulations, we need fuel suppliers to get into the airports also need to play a part. And very importantly, we need a accounting mechanism to account for the emissions on a chain of custody basis. So there are a lot of things that we need to be done, and the governments and the fuel suppliers and airports can rest assured that airlines will use every bit of SAF that is being produced.
Karen Walker:
Which is what they're doing at the moment. So that, again, it's sort of hard to understand the oil company and gas companies' position because they can't see the demand airlines are using every bit. It's just that it's a very small amount that's available. It was interesting, that was some of the talk at the symposium was that how many more, I mean literally hundreds if not thousands more of these refineries that they'll need, the SAF refineries. And if you start building one tomorrow, it could be a five to seven-year process to get that done. So there's a time issue. So I'm sure we'll hear a lot more about that at the-
Subhas Menon:
Yeah, but it's not just the refineries. We need the refineries close to the airports because otherwise you're going to burn more carbon by transporting this to the airports. So we don't need large sized refineries, probably smaller size refineries, but as you say, many, many more refineries close to the airports.
Karen Walker:
Right. Just lastly, Subhas, I'd just like you to talk a little bit about the AAPA membership. It's interesting because you've clearly got the airlines that you would associate with this region. Big names like Singapore Airlines, Cathay, ANA, JAL, Thai Airways, Malaysia Airlines, it goes on. But you've got some interesting ones there. You've got Air Astana of Kazakhstan has been a member for quite a long while, and then last year Air India joined, which was big news. What's that breadth of regions, cultures, very different sorts of types of airlines bring to AAPA?
Subhas Menon:
I would say that, well, in our constitution, we welcome any airline regardless of business model, anywhere from GMT plus 12 to GMT plus five. That's why Air Astana is in our membership. Basically, any airline that identifies themselves with this region is welcome. And Air India was a big coop for us because of course, India is a big market. So yeah, that is it. I mean, I wouldn't say we are on the prowl for new members, but we always welcome new members and an expanding membership also gives credence to the association as the only voice for the Asia Pacific region in this industry. So it is important to expand our membership.
Karen Walker:
Excellent. Well Subhas, thank you very much again. I am personally very much looking forward to attending the assembly. I'm sure it's going to be a very interesting, productive, and successful. So I will see you in November. Thank you to our producer, Cory Hitt, and of course to our listeners, make sure you don't miss any of our weekly programs by signing on at Apple Podcasts or wherever you listen. This is Karen Walker disembarking from Window Seat.
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