ISTAT Asia: Asian airline market update

Introduction

May 11, 2015, c. Leeham Co: We are participating this week in the ISTAT Asia conference in Singapore where IATA and different panels gave an interesting update on the Asian airline market. This is the fifth year that an ISTAT (International Society of Transport Aircraft Trading) conference is held in Asia and participation has virtually doubled from last year to 500 delegates.

IATA’s Conrad Clifford opened the event with the following overview about the Asian market for airline passenger travel:

  • The IATA 20 year forecast growth for the region is 4.9 % annual growth, making it the largest world-wide passenger market by 2030.
  • The domestic markets of China and India grew with 11% and 20% respectively in 1Q2015. The US market in comparison grew 3%.
  • The growth in the region makes China the world-wide largest domestic passenger market by 2030, surpassing the US with India in third place.
  • The highest growth markets are China, India and Indonesia. Countries like Thailand and Malaysia are struggling with low demand at present.

Growth drivers

The driver for this massive increase is the growth of the established middle class of China and the emerging of sizeable middle classes in India and Indonesia. These countries all have large populations, with 1.4bn in China, 1.3bn in India and 255m in Indonesia. This can be compared with an US population of 320m people.

This phenomenal growth causes strain on the whole civil aviation eco-system. Consequently the region is fighting the lack of soft and hard infrastructure, such as shortages of trained pilots, traffic controllers,  adequate airport infrastructure; and congested airspaces and have record order backlogs for aircraft.

There are several initiatives under way to attack these growth inhibitors:

  • Establishment of local pilot education facilities in the growth countries as most of the carriers providing the growth are LCCs and they cannot long term afford to import pilots to cover their needs.
  • Air Traffic Controllers is also in scarce supply and the establishment of training facilities for these and airline support personnel like engineers, maintenance personnel etc are being stepped up.
  • Expansion and rationalization of airport infrastructure is a key activity where IATA is active as advisors such as when new airports are being projected.
  • Improved traffic flow inside and between the countries with an especially interesting project being the desktop based peer to peer traffic flow management project “Seamless Asian Skies” involving China and seven other countries in the region.

Aircraft supply

The supply for aircraft capacity in the region has been adjusted somewhat during 2014 with several carriers adjusting their overly optimistic growth plans downwards. The low fuel price saved these carriers from inducing heavy losses in the right-sizing process. Longer term there is a healthy supply of aircraft going to the region, exemplified by 540 aircraft being planned for delivery during a “moderate” 2015.

An important prerequisite for these deliveries is the adequate supply of finance for all these aircraft. The region therefore has a high activity of establishing local leasing and finance institutions on top of the global players’ active in the region to cover to these needs.

Money is sourced on a worldwide basis but there is an increasing supply coming from, e.g. local pension funds in China that realize they need to find better placements for their clients saved money, as standard placements does not give the yields their customers expect. Aircraft as a placement asset is therefore growing in interest as it is a mobile placement which can adapt to market changes.

On the aircraft supply side all present OEMs are present but there is also a growing presence of the local suppliers. Mitsubishi Aircraft presented the progress of the MRJ regional jetliner and COMAC aircraft has several representatives at the venue.

Several airlines mentioned a change in fleet plans as growing congestion at key airports in the region (example: Hong Kong) had them change their purchasing plans from taking predominantly the mid- model of the OEM’s single aisle to now ordering 30% of, e.g., the Airbus A321 growing to a projected 50%.

Summary

ISTAT Asia’s own growth is a symbol for how the civil airline activity in the region is growing and with that the establishing of all the components necessary to support that such a growing industry. The conference is handling a number of the issues involved; focused on aircraft supply, financing and management.

The percentage of operators that prefer to lease their aircraft rather than owning them are growing, projected to reach 40% of deliveries in the coming years. The leasing industry of Asia is booming as a consequence with the first mainline China leasing company, ICBCFL, soon to be followed by others according to ICBCFL deputy CEO, Tao Mei.

8 Comments on “ISTAT Asia: Asian airline market update

  1. Hi bjorn

    I spent an extended trip around China recently, Shanghai, Beijing plus others and was struck by the number of wb aircraft used short haul, we heard again and again about a a330 regional sale to China. Is that dead in the water or just subject to chinese obfuscation?

    I see it being a sound plan for both parties, Airbus covers a330ceo slots and China gains the perfect aircraft for the city pairs in country at a very keen price
    Thanks

    • There was an article recently about A330 prospects in China by Jens Flottau in Aviation Week.

      He doesn’t seem positive about the prospects, although China may only reject the CEO regional model that Airbus was pushing, to help with their own production issues.

      Planes are purchased centrally. What airlines want isn’t the same as what the Ministry buys for them.

    • Hi Bob,

      it is (or now perhaps was) a good idea but time is running out as it was designed to help China with its domestic problem and Airbus with the bridge to A330neo. The decision recently by Airbus to lower production to 6 per month is to a large extent the result of the Chinese airlines not acting in the provisioned time for this to be a win-win for both parties.

      I get the message locally that Chinese airline officials, being state run companies, have the tendency to avoid making mistakes rather than taking risk and making untried decisions. They use widebody aircraft like the A330 for domestic use but these are also then used for midhaul routes around South East Asia. An A330regional would not carry that flexibility as it is high density 9 abreast with limited galley facilities and its fuel carrying capabilities are limited by its papered low TOW.

      • Thanks bjorn

        I hadn’t thought through sufficiently the inherent limitations of the regional version. I had assumed that it was either due to higher politics, lobbying for assembly in country or unwillingness to accept ‘second best’.

    • Hi Sowerbob, also was around Asia recently on some of the big hubs and I was impressed by the number and variety of A330s everywhere. It clearly became the people mover in and around China.

      About the “A330 Regional”, it will remain a heavy/big one with the costs associated. And, does China still want an A330 assembly line, or not? They can build their own future line “next” to it to shorten the learning curve. http://airinsight.com/wp-content/uploads/2015/02/DF-uaccomacpix.jpg

  2. I would think with older A330s being retired if the regional worked (where you didn’t need flexibility to go International) then you just buy them (or lease) as much low costs than a new one.

    carry less fuel and you have your de-rated airplane.

    Be interesting to watch.

    I am seeing 767s coming through Anchorage that are obviously going to new homes as the 787s take over and the older ones are retired. In very nice shape so not dogs

    • The problem of older widebody aircraft was handled at length on day two of the conference, stay tuned for a special on the subject.

  3. Pingback: » Daily Aviation Brief – 13/05/2015

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