Asian airlines ready to take off from a low base in 2022

As more markets join the chorus of relaxing border controls, Asia seems to have fallen behind the curve. The economic implication is obvious for airlines, creating a divergence between Asia and global peers in capacity and revenue. But the good news is that covid-related mobility restrictions are easing in several Asian economies and more seem to be on the way. In this note, we analyze the performance of international routes for Asian airlines.

From a global perspective, every airline has suffered from flight bans due to border controls, but the negative impact is more significant for passenger than freight traffic. Between April 2020 and March 2021, passenger capacity was only 18% on average of the pre-pandemic level(Chart 1). In contrast, freight capacity stayed afloat at 84% with revenue supported by higher fees due to more robust demand for trade and easing of supply chain disruptions.

The game-changer came in April 2021, causing the divergence between Asia and the world. With laxer border control, the passenger capacity of global airlines grew to 42% of the pre-pandemic level in February 2022, while Asian airlines struggled at 16% (Chart 2?and?3). Unlike passenger traffic, Asia’s freight capacity did follow global averages with some markets performing even better than peers (Chart 4). Within Asia, India is a clear outperformer with international passengers rebounding to 51% of the pre-pandemic level in 2021 (Chart 5). The key reason is India has formed air travel bubbles with various countries as early as July 2020, meaning business travelers either way without quarantine requirements.

There is plenty of room for Asian airlines to rebound given the low base. Since January 2022, more Asian economies have planned to reopen their borders with reduced or no quarantine requirements (Table 1). As an early mover, Singapore shows air passengers will return even quicker for itself and other markets in the rest of the year. Singapore previously offered quarantine-free travels with multiple countries via its Vaccinated Travel Lane, and it has moved towards a full opening. Within three months, international passengers rebounded from 14% in end-2021 to 20% in March 2022. Still, pressure will persist in markets with a Zero-covid policy, such as Mainland China and?Hong Kong.

In summary, laxer border controls should improve the capacity and revenue of Asian airlines, catching up with global peers in passenger traffic. But there is still a big question mark on China regarding the timing of domestic and international mobility restrictions. There are indeed other risks that airlines may be facing, such as higher fuel costs, but the challenge will not be bigger than the period when planes were grounded due to the Covid-19 and border controls.

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