Asia airlines brace for cost hit, slow return of Chinese fliers – industry execs

By Chen Lin

SINGAPORE (Reuters) – Asia-Pacific airlines face headwinds from rising fuel prices and high inflation, industry executives said on Friday, adding to a downbeat outlook for a segment where travel demand is struggling to recover fully to pre-pandemic levels.

The region’s air travel recovered to just 69% of 2019 levels for the year through September, trailing all other regions, impacted mainly by China’s slow reopening of borders after COVID-19, according to the International Air Transport Association.

“Industry recovery has been slowed by inflation, the tight job market, supply chain constraints and fuel prices, which are still higher than in 2019,” Subhas Menon, Director General of the Association of Asia Pacific Airlines, told its annual gathering.

“Non-oil costs are also escalating in areas like ground handling and taxation, thus squeezing the profit margins for airlines,” he said, adding supply chain issues continue to impact deliveries of new aircraft and spare parts for maintenance.

Singapore Airlines (SIA) posted on Tuesday a record profit for the six months ended September, but profit in the second quarter slipped 3.7% from the previous quarter, underscoring the growing cost pressure.

“As people added capacities in the recent half year, in terms of yield it has actually come down,” said SIA CEO Goh Choon Phong, in response to a question on whether air fares have peaked.

The industry is banking on Chinese travellers returning in full force to kick off a fresh wave of growth, which Menon expects by the first half of next year.

China was the largest air travel market before COVID, accounting for a fifth of international travel within Asia Pacific and 6% globally.

But that has fallen to 10% and 2%, respectively, this year, as recovery in China has been mainly focused on domestic travel and the slow lifting of restrictions on group tours to popular overseas destinations limited international travel.

“We will start to see a downhill, but more of a soft landing instead of falling off a cliff,” said independent aviation analyst Brendan Sobie.

“The economic situation is cloudy, not dire, …but there’s still a lot of supply constraints.”

(Reporting by Chen Lin; Writing by Miyoung Kim; Editing by Muralikumar Anantharaman)