Ep 23: Bubbles, Bailouts & Bloated Fares: SEA Airlines Are in a Mess

Airlines, aviation, and by extension, airports… What a mess!

This week, Gary and Hannah attempt to unpick the complex interplay of airlines, governments and travel bans that is confusing travellers across South East Asia.

The early post-COVID recovery is plagued by bailouts, air bubbles that haven’t come to fruition, governments announcing and delaying the lifting of travel bans and different states within countries being treated or responding differently.

We’ve got quarantines, high fares, flight cancellations… and very little guidance from ASEAN. Is there a route map for rebooting air travel in South East Asia?

Show notes

01:00 South East Asian Airlines are a mess!

“The early stages of the post-COVID recovery have been plagued by bailouts, air bubbles that haven’t come into fruition, governments announcing and delaying the lifting of travel bans and different states within countries being treated or responding differently in some cases.” (Gary)

“At the moment, consumers are in the dark, tour operators are in the dark and even sometimes the airports don’t know what’s going on!” (Hannah)

03:06 The rationale (or not) of banning alcohol on flights?

“It does look like this is cost-cutting through the backdoor.” (Gary)

“It doesn’t really send out the right message. Basically, you’re going to get on a flight, you’re not going to be served any drinks… it’s not a huge incentive to get on board.” (Gary)

04:37 Airline seat capacity according to OAG for the week 15 June:

3.57 million vs. week 29 Jan’s 10.86 million seats, down 67.1%. Opening up the Philippines added 100,000 weekly seats, but cuts by Lion and Batik Air meant that the week was down 5.9% on the week 8 June. Indonesia was ranked 4th globally for seat capacity, down 51.6% vs 20 Jan, and Vietnam 7th globally, down just 27.1% vs 20 Jan.

06:40 The split of domestic and international air routes in Southeast Asian markets:

Thailand’s 2019 domestic capacity counted for 46% of seats, Malaysia 52%, Vietnam 65%, Philippines 65% and Singapore 0%.

“Yes, they have the domestic mix, but it is still powered by those connections. A lot of travellers in Thailand will fly in internationally, then connect domestically. So if you still don’t have those international passengers powering the domestic flights, your domestic flights will still not rise to the same levels as 2019” (Hannah)

“There’s been a surge of people visiting to Penang or Langkawi, but there’s a concern that this could be a one-off and we may see these dips and troughs.” (Gary)

09:06 Cathay Pacific’s lifeline of $5 billion USD and what that signals for South East Asia

“I think that shows clearly the disastrous impact of COVID-19 on air carriers, which in some cases also exposed the business model fragilities that existed before the pandemic.” (Gary)

10:26 Thai Airways and its “rehabilitation” process: staff cuts, cost-reductions, potential reductions of flight routes and frequencies, postponing of starting international flights and what reducing the government’s stake could mean for government input

“The sticking point for their customers and travel agencies is that they are unable to get refunds for the next 6 months.” (Hannah)

“We don’t really know for a year what the future airline will look like.” (Gary)

“A lot of Mekong countries rely on connectivity through Thailand, so whatever Thailand or Thai Airways do will affect them indirectly, too.” (Hannah)

13:11 Malaysia Airlines and a potential bailout? Rumours of financial support from Khazanah, Malaysia’s state fund.

“It looks like right now the situation post-COVID is that it will get another financial boost and another turnaround plan.” (Gary)

“We do suspect that Malaysia will want Malaysia Airlines to play a key role in the tourism recovery, however that happens.” (Gary)

14:51 Singapore Airlines and the world’s biggest bailout for an airline, the postponement of Changi’s terminal 5 construction providing a gloomy outlook on recovery

“Singapore Airlines is pivotal to the Singapore economy.” (Gary)

“You do wonder whether their bailout influenced Cathay Pacific, as of course the two hubs are competitors.” (Hannah)

16:55 Garuda Indonesia and the extension of its sukuk bonds - plus another looming cloud of debt maturation later

“Mecca trips account for 15% of its seats, and China 5%. That’s a fifth of their business that they have no chance of getting back.” (Gary)

“The aviation market is not yet mature, there is still a huge amount of potential, so investors are more open to investing their money as they know they’re going to get it back.” (Hannah)

19:30 The social importance of airlines in the Southeast Asian region - airlines are needed to keep communities linked and open

“Look at very remote places in Borneo - they really need air routes, they’re of social importance and airlines are even under contract from the government to keep these routes going.” (Hannah)

20:18 Royal Brunei Airlines: July schedules just comprise of 5 destinations, with 18 weekly flights

“It needs to keep its slots. These airlines can’t give up their slots as they don’t know if they are going to be able to get them back, or the costs involved to do that.” (Gary)

22:11 Low cost carriers in SE Asia and their difficulties

“AirAsia and Lion Air really led over the past 20 years this development of low cost flying in SE Asia and other countries in Asia too, […] Vietjet has seen this opportunity in recent years and has started to aggressively expand and take on these two carriers going forward.” (Gary)

23:21 AirAsia and their reliance on the Chinese market, the loss-making AirAsia X, and the possibility of selling a 10% stake to SK Holdings.

25:20 Malindo Air and putting staff on voluntary redundancy schemes

“They had an interesting model which was a hybrid when they first launched […] over the past few years we’ve seen that phased out.” (Hannah)

“Airlines are going to have to find new opportunities to generate ancillary revenue before, during and after the flight” (Gary)

26:30 Possible mergers: Thai AirAsia hinting that they might merge, Myanmar’s minister has told airlines they need to “work together”

27:35 De-mergers: Jetstar Pacific in Vietnam, with Qantas divesting its 30% stake back to Vietnam Airlines and returning its naming back to “Pacific Airlines”

28:16 Vietnam Airlines and its financial difficulties: from considering buying 50 new planes to announcing they will run out of money next month.

“They’re being forced to be aggressive by VietJet: they [Vietnam Airlines] are having to be aggressive and having to move forward.” (Gary)

29:35 Bamboo Airways and their thwarted attempts to open up routes to Europe and the USA, but are still keen competition

30:25 Flight prices and airlines’ limited opportunities to create new revenue with in-flight social distancing, the numbers of flights that they’re able to operate

“In Malaysia we had this case of flying from Kuala Lumpur to Borneo where a return ticket cost RM2,000. To put that into context for our listeners, I once booked a return ticket from Kuala Lumpur to London for RM2,300.” (Hannah)

“Until airlines reach a happy medium, domestic travel is not going to happen. You’re not going to book a RM2,000 flight unless you really have to be there.” (Hannah)

33:03 The future of aviation in South East Asia? Uncertainty, possibility of travel bubbles with Australia possibly evaporating and Beijing’s increase in cases doesn’t help sentiment

“Are we looking at an ASEAN bubble? But if we do that, then we still have countries who are still fighting the first wave.” (Gary)

34:50 New possible air routes for Cambodia,with East Timor, Australia or the USA? Vietnam will lead the pack in opening up new international routes once that is a feasible option.

35:15 Non-ASEAN carriers and their future: Chinese, Korean, Middle Eastern and Turkish Airlines. What demand will there be?

“Are people going to be willing to take those long-haul flights?” (Gary)

Summing up:

“It’s going to be a long road to recovery for those airlines.” (Hannah)

“While we have these travel bans, quarantines in place, the airlines are only fighting for a small percentage of a potential market they would normally have” (Gary)

Resources

Link to OAG’s wc 15 Jun report

Link to OAG’s webinar with domestic/ international air routes split