Finally China has reopened its borders after three years of lockdown, bringing welcome relief to the aviation sector around the world. Passengers can enter China without quarantine, only needing a negative PCR test before departure.
“It is encouraging to see Hong Kong and China are reopening its doors to the rest of the world,” said Vivien Lau Chief Executive of Jardine Aviation Services Group (JASG).
“The overall sentiment and demand for travel continue to improve in Hong Kong, which attracts airlines resuming flights and adding new routes. Japan, Thailand and South Korea proven to be the popular destinations for Hong Kong leisure travellers. Philippines and Indonesia are busy routes as many domestic helpers are longing to go back home.”
One of JASG’s core group of customers are mainland Chinese carriers. There are constant requests on increasing flight frequencies in the coming months. Starting from Q4 of 2022, they have been appointed by five new mainland Chinese carriers launching new routes to Hong Kong.
“The reopening of the border between China and Hong Kong is bringing back the passenger traffic back to normal earlier than expected. International airlines are busy restarting services in China, and Southeast Asian countries are the most favoured destinations for Chinese holidaymakers.
“Likewise, the three major Chinese carriers are flying more overseas routes. While there are still some visa issues and capacity constraints, the first half of the year will be a gradual process for the airlines and airports to rebuild the ecosystem, and a spike in revenge travel won’t happen until later half of 2023,” said Lau.
On the reopening of China’s borders, Alistair Reid, EVP Oceania & South East Asia, of Menzies Aviation, said: “This is good news for cargo volumes in Australia and New Zealand, which were significantly impacted by China’s border restrictions. In East Asia we will continue to see a balanced approach with airports increasing capacity in a sustainable manner.”
Wilson Kwong, Chief Executive of Hactl, said other adjustments need to be made until we see a return to substantial growth. “Obviously we welcome any lifting of restrictions which can only benefit the industry and supply chains, but other factors such as manufacturing output and consumer demand are just as important and are currently not ideal. A lot of dust has to settle in 2023 before we can expect a return to significant growth.”
Reid said: “In East Asia we have seen a steady recovery since mid-2022. Each country has slowly relaxed their Covid requirements in a somewhat serendipitous, staggered fashion which has allowed the sector to rebound in a controlled manner. The sudden re-opening of China at the start of January has stimulated recovery and we’re expecting a further increase in passenger and cargo movements across the region in the coming months.
“In Australia’s case within the country itself, the recovery has been dependent on individual state government’s relaxing travel restrictions. This has impacted our ability to plan resourcing and scheduling and we are still experiencing some challenges in both respects.”
Brad Moore, Head of Asia Pacific, Swissport, said recovery is strong with volumes returning quickly as the world returns to normal and the reopening of China has certainly boosted aviation recovery.
Western tourism
Javed Malik, Technology Advisor and Chairman of the Advisory Board at Innovation Ink, also believes there will be limited growth in the Asia-Pacific region, stating that the recovery has been slower than some markets but it is doing well within its domestic and local markets, specifically within the tourism industry within each country.
“We see pre-Covid levels in some areas and cases and much higher demand, but the Far East is lagging ultimately because of the China effect. Some of the markets had up to 60% of their tourism built around Chinese travellers, and that’s no longer a viable or sustainable way to go.
“There is a significant gap from 2019, but demand locally is positive. Inter-regionally, Thailand, Malaysia, and Indonesia are seeing Western tourism return but not to pre-2019 levels yet fully. The pent-up demand that was there in early 2022 has now been booked up. Even with higher fares, you see full planes. People find ways to travel, there is just not enough capacity for the demand on some routes.
“My forecast is that we’re going to see some improvements in domestic localised markets, but the 2019 numbers won’t return across international travel. I feel that 2023 is going to be one of planned careful growth but a smaller digit percentage. Ultimately, it will be a year of building confidence, skillset and competency, finding new initiatives and creative ways to drive revenue, and being prepared for the end of 2023 towards Q1-Q2 of 2024, when we hope to come out of Covid completely.”
Charles Galloway, Regional CEO for Airport Operations – Asia Pacific of dnata says he is positive but apprehensive about this year. “Asia-Pacific has endured a challenging three years during the Covid-19 pandemic. Though with the recent China border re-opening and other major northeast Asian nations such as Japan, Taiwan, and the Republic of Korea also re-opening in Q4 of 2022, we are cautiously optimistic for the year ahead.
“Although numbers have not yet returned to pre-Covid levels, we continue to work closely with our airline partners to meet their expansion requirements since we have the capability to flexibly adjust our resources and efficiently support the increased demand.”
Reid said: “Australia, New Zealand and East Asia have been through significant turbulence for close to three years now, with varying degrees of recovery. Not only has it varied between countries but, in Australia’s case within the country as recovery has been dependent on individual state government’s relaxing travel restrictions. This has impacted our ability to plan resourcing and scheduling and we are still experiencing some challenges in both respects.”
Passenger numbers
According to passenger traffic of Hong Kong International Airport (HKIA), they are operating at around 20% of pre-Covid level (as at November 2022). It is expected passenger traffic will be back to around 80% of pre-Covid levels by the end of 2023.
“Encouraged by the reopening of the borders of China and Hong Kong, there will be a significant jump of air traffic for the summer schedule 2023. All the ground operators in Hong Kong International Airport, including JASG, are ramping up our resources to meet the demand,” said Lau.
Another exciting prospect in the not too distant future is the official launch in 2024 of the three-runway system in HKIA, which will increase airport capacity with the targeted annual passenger and cargo volume of around 120 million and 10 million tonnes respectively.
“We are definitely on the right track of bringing the traffic to the pre-Covid level of 71.5 million passenger throughput and 4.8 million tonnes of cargo (HKIA traffic in 2019),” stressed Lau.
Kwong said: “Overall, we remain strongly optimistic for the future of Hactl and Hong Kong, with good prospects for its future hub status once the three runway system is fully operational.”
In Oceania, Menzies has seen domestic volumes return to pre-Covid levels, however international movements are yet to recover fully. “Airlines have increased operations over summer which, ordinarily, would be great to see, but unfortunately the labour market hasn’t recovered in the same way. From retail to security, immigration and ground services, the airport supply chain continues to face workforce shortages,” said Reid.
“Volumes have been very strong, with the appetite for travel with the regional public being exceptionally strong. The term ‘revenge travel’’ post-Covid restrictions applies well down here,” stated Moore.
Malik, who used to be Chief Operating Office at Air Asia, said the region performed reasonably well in 2022.
“It wasn't at 2019 levels and won't be, as I mentioned before, because of China predominantly. But we're seeing European tourists come back into the Asian region, we're seeing Australians and New Zealanders finally travelling to Bali, and they've had much tougher lockdowns.
“FIFA World Cup in Qatar also drove strong regional numbers as those coming from North America and South America and Australasia, for example, came to Qatar and then jumped onto other destinations before heading home, packaging a longer vacation once in the region. Volumes are not going to be back to normal until Q2 of 2024.”
Cargo volumes dip
In East Asia there has been an uptick in passenger traffic over summer with a corresponding decline in freighter demand.
Reid said: “This trend is expected to continue for cargo throughout 2023 following the decline in consumer spending, however the cyclical downturn is expected to reverse in 2024.”
Kwong added that the cost of living crises throughout large parts of the world, triggered by extreme energy cost inflation, have dampened consumer demand for many of the commodities which are at the core of the airfreight business.
He continued: “Nearer to home, continuing lockdowns in China reduced output and caused supply chain disruptions, and this has impacted Hong Kong as the major gateway between China and the world. Operationally, the industry is in better shape again, with more scheduled capacity. Unfortunately, this has arrived just as markets have slowed, driving freight rates down.”
Kwong said throughput struggled to match pre-Covid levels during 2022. “In some ways, though, this should not be surprising: airfreight tends to track growth in global economic growth. The boom during 2020 and 2021 was specific to Covid-related factors such as e-commerce growth and PPE, and the tougher picture of 2022 was largely a readjustment. Air cargo demand will return to its long-term average growth once temporary factors such as energy prices stabilise.”
Manpower challenge
Across the board labour shortages remain a major challenge for ground handlers.
“With the full swing from cabin-loading preighters (Covid period) back to full-service passenger flights (Post-Covid), most of the ground operators including JASG face the same challenge of insufficient manpower particularly check-in agents,” said Lau. “After close to three-year of pandemic shut down, some airport staff have changed career to other industries. Recruitment of new joiners is proven to be extremely difficult. Moreover the customer-facing role also requires lengthy training including airline system, document check, basic product knowledge, and customer service skills etc.
“On the other hand, airlines are resuming flights at a quicker pace. Ideally, we would like to have a three-month notification period which allows us time to arrange proper manpower and training. Nevertheless the airlines are desperate to resume flights as soon as possible in order to capitalise on strong travel demand. Hence, it is critical to maintain close communications between airlines and ground handlers to ensure smooth resumption.”
Kwong agrees that recruitment remains the biggest challenge for Hactl, the Hong Kong airport community, and for Hong Kong as a whole.
“For many years, Hactl has invested heavily in training and career development for its staff, as part of its drive to be the industry employer of choice in Hong Kong. And, while that has enabled us to achieve below-average churn and above average staff satisfaction, we cannot entirely mitigate the effects of almost full-employment: this can make working a long way from habitation centres, shift-working and manual work in (sometimes) inclement weather less than appealing. It’s a reality we have to face, and is why we are looking at further automation in some of our handling processes so that we can do more with the same, or less, human resources.”
Things are slightly better for dnata. “We are dedicated to the continued recovery of the aviation sector across Asia-Pacific. As a result of our efforts and commitment to our colleagues and customers over the past years, we are well-placed to meet the increasing demand for our services. We continue to plan and recruit for future volume recovery and are currently fully resourced to meet existing demands, delivering safe and secure services for our customers across the region,” said Galloway.
Reid said recruitment and labour shortages continue to be a key challenge for Menzies, both globally and in this region, as many people left the industry during the pandemic and simply haven’t returned. “Restrictions on foreign workers in East Asian countries are impacting our ability to bolster our workforce and we’re also facing elevated labour costs in this market.”
The situation for Swissport slightly differs as while the labour market continues to be a challenge particularly in certain regions and attracting and retaining sufficient staff is a major priority to ensure the successful return of the sector, overall this hasn’t been a restraint to growth.
Struggling airlines
Malik does not see airlines being able to recover for several reasons.
“The supply chain remains slow, with up to nine months of lagging timelines. Cashflow hinders the ability to spend on spares and to pay for more leased aircraft to be released back. There is a significant amount of maintenance and checks required as well as substantial components and replacements and then the flying testing that needs to be done for certification to bring them back online.
Skilled and experienced manpower shortages are still hurting service and performance levels. That is why some airlines will not be at or greater than 2019 numbers across all their markets and segments.”
He continued: “Some airlines may say they are stronger and doing well, but that is just not the case. Their leaders are putting a brave and frankly driving share price and market sentiment positive towards their funding and keeping their workforce engaged and retained.
“This is not the true picture. If you look at the details and press on line-by-line activities needed to bring those 2019 numbers to reality, you will see gaps in the sales pitch. The reality is, it is a simple mathematical exercise, there is not much MRO spare capacity, there is not enough supply chain availability, there is not enough experienced manpower, and yet the demand is to get more aircraft repaired, and service validated. Airlines have not got the exact frequencies or route network of 2019, they are not able to offer the same lower prices, and their OTP is not as good as it was.
“That's not an Apple versus Apple comparison anymore. The other challenge is continually relying on China's volumes to come back, we wait too long and don't find alternative ways to drive revenue.”
Achievements
As the Covid crisis continued in early 2022, JASG had taken advantage of being less busy to cross-train staff and successfully redeployed colleagues to support other teams.
Moreover, they have completed the upgrade of the Resource Management System (RMS) by Q4 last year, which allows them to work on manpower planning to meet with the flight demand in a more efficient way.
“Despite manpower challenges, our team are still delivering good services and five new airlines appointed JASG as their ground handler in Hong Kong, so the positive momentum is carrying forward in 2023,” said Lau.
“One of our key initiatives will be Jardine Aviation Academy (JAA). JAA is currently the only IATA Regional Training Partner in North Asia, providing IATA classroom training with IATA-certified trainers and materials. Moreover, we were accredited IATA Competency-based Training and Assessment Centres (CBTA) in 2022, and we are amongst a few who are authorised to deliver IATA Dangerous Goods Regulations (DGR) Training Courses in Hong Kong. We have revamped our website www.jasg.com where JAA information is updated constantly. We are looking forward to further collaboration with other business partners in the aviation sector.”
Hactl has just finished developing a Hactl-designed Live Animals Container that will improve conditions for smaller live animals while in transit on the ramp, which is a further enhancement of their live animals services which were significantly upgraded when they underwent certification of CEIV Live Animals.
“Hactl has long-term goals, largely centred on sustainability and continuous improvement. That’s why we have continued to invest, even in these less favourable times, in new and upgraded facilities and technology such as our new “Terminal Services Centre (Import) and our new Fleet Monitoring System to better manage our huge GSE fleet. We have added to our certifications with IATA’s CEIV Lithium Batteries, and accreditation under IATA’s new Competency-Based Training and Assessment (CBTA) format for our established DGR training centre. The Hong Kong Qualifications Framework (HKQF) has also accredited four of our training courses. Naturally, we have also added a few carriers to our portfolio, and a few more trophies to our cabinet.”
dnata has signed up numerous new customers over the past year, including start-up airlines seeing current market conditions as an opportunity. “These wins are a great reflection of not only the trust shown by our valued customers, but also the dedication and agility of our people despite challenging times across the industry,” said Galloway.
“We are proud to have been true to our values throughout the pandemic, being safe and secure in every aspect of our operations. We also care about our people and the planet through our dnata4good employee-driven initiative which recognises the importance of being socially accountable and making an impact beyond our business goals.”
dnata remains committed to reducing its carbon footprint to ensure the highest possible level of environmental efficiency across operations. Over the past year, it has installed a 3.5 megawatt-peak rooftop solar power system at its catering and cargo buildings at Changi Airport. It has also replaced a number of ground support equipment (GSE) and forklifts with hybrid or electric alternatives across the region, while refurbishing selected GSE where appropriate. The company also continues to drive digitalisation efforts across our cargo operations in both Australia and Singapore.
“This allows for improved oversight on a local and global level. It also supports enhanced customer engagement and service excellence, elevating data sharing with all our stakeholders in the air cargo ecosystem and provides enhanced transparency across the cargo handling processes to extend life cycles, reduce waste and update them to the latest safety and quality standards.
Moore says Swissport is looking forward to opening new products across the region. “Our lounge product debuted in 2021 in Australia/ Korea and Japan and the cargo business will start in 2023. A number of new customers have signed up for both, making 2023 an exciting growth year for Swissport in APAC,” he said.
Trends
Kwong said: “We expect markets to settle in 2023 as various global and economic factors are hopefully resolved. But we see no reason yet for dramatic growth in air cargo, and will be quite satisfied with even a moderate uptick. 2024 is when we expect the return of consistent growth.”
“Despite a slow start to recovery when compared to other regions, we have witnessed a steady rebound that continues to benefit from pent-up demand as countries relax travel restrictions,” said Galloway.
Reid added: “Menzies Australia has achieved positive organic growth in 2022. Despite the economic headwinds, we’re confident that 2023 will see further recovery and growth across the region thanks to our strong customer relationships.”
Malik does not see 2019 numbers or environment being delivered in 2023 at all. “Actually, I don't even subscribe to 2019 being the measure anymore. The market, price structure, workforce, and mindset of travellers and workers have shifted, and we have new expectations that have to be measured and delivered again in 2023 and beyond. If we purely look at PAX numbers or a number of flight movements as a comparison of recovery from Covid, then I do not see those matching 2019 numbers until 2024.”
