"Asia Pacific Continues To Be Hotspot For Airline Growth"

25.07.2012
Source: Abacus International

Airlines continue to look to Asia Pacific for growth amidst global economic uncertainty as the region's economies continue expansion in the global airline industry, says Abacus International, Asia’s leading revenue partner for airlines.

 

Carriers based in Asia Pacific will make profits of $2.1 billion in 2012, according to forecasts from the International Air Transport Association (IATA). This accounts for 60 per cent of the total profits predicted for the global airline industry, making Asia Pacific a key region for aviation growth[1].

 

“We see tremendous growth potential in Asia Pacific,” said Mr Robert Bailey, President and CEO, Abacus International. “The Asia Pacific region is now the world’s single largest aviation market as well as a growing economic powerhouse, making it crucial for airlines to be a part of this market for increased growth.”

 

Of the expected global air passenger traffic increase by 2014 to 800 million, 360 million or 45 per cent of those will travel on Asia Pacific routes, with China and India being the biggest contributor[2].

 

Chinese tourists made 57 million outbound trips in 2010 and this is expected to rise to 100 million by 2015[3] while India has been experiencing double-digit growth in the travel industry and is expected to have around 1.8 billion travellers by 2021[4].

 

The growth in traveller numbers comes as these two countries experience a burgeoning middle class who are travelling both domestically and internationally in ever increasing numbers. The trend for increased travel by the middle class will grow as Asia expects to add at least an additional 2.5 billion people to its middle class by 2030.

 

”Asia travel demand is not uniform and the trajectory of growth does not move in a straight line. In the first half of 2012, we have observed some softening of travel in key markets like India as evidenced by the challenges faced by Kingfisher airlines. Such matters are more than compensated by steady growth from China as mainland Chinese airlines adopt an aggressive international expansion strategy in response to potential leakage of domestic travel demand to high speed rail. In addition, the ASEAN markets (with population base of over 500 million) and North Asian markets including Japan, Korea and Taiwan are bubbling with optimism. Taken as an aggregate, Asia will still lead the world in travel transactions growth over the next decade,” Mr Bailey added.

 

China and India are key players but other emerging markets beckon

 

The growth in travellers is not limited to China and India, with several emerging travel hotspots in Indo-China and SE Asia that could propel travel demand to the upside over the next decade. Front and centre in these hot regions is the tremendous growth that is expected of Myanmar and Indonesia over the next decade.

 

With the lifting of international sanctions, Myanmar is poised to for a surge in investments and economic transformation that would unleash the latent potential of this country and drive Indo-China travel demand even higher. The Myanmar travel industry is currently the most underserved travel market in all of Asia and initial forecasts indicate that traveller numbers are set to increase about 300 per cent in 2012 against 2011, with up to one million tourists expected to visit[5]. Outbound traffic will also grow sharply till 2016, with an expected 100 per cent increase from 2011[6]. In light of the new opportunities, many airlines including All Nippon Airways, Cathay Pacific and Qatar Airways are exploring whether to launching flights to Myanmar this year.

 

The raising of Indonesian sovereign credit rating by key agencies like Fitch and Moody has enabled Indonesia over the next two years to join the exclusive club of 15 countries with annual GDP above US$1 trillion and to grow their GDP by six per cent annually over the next decade. There is tremendous opportunity for travel companies to ride on Indonesia’s growth and to tap the large domestic market in Indonesia.

 

Total international arrivals in Indonesia grew last year by nine per cent to reach 7.7 million international tourists while domestic travellers generate some 120 million trips per year. The growth trend of the travel industry in Indonesia is also accelerating as evidenced from an increase in visitor arrivals by 11 per cent to reach 1.9 million in the first quarter[7].

 

Corporate business continues its growth in Asia

 

The demand for corporate travel in Asia Pacific is also expected to continue to rise as businesses within the region and around the world send employees to Asia Pacific countries to capitalise on economic expansion.

 

“Corporate travel remains an important booking source for airlines. While this tends to be affected by the economy, there is still much room for growth, particularly in Asia Pacific where there is strong demand for business travel to emerging markets,” said Mr Ho Hoong Mau, Division Head, Airline Distribution, Abacus International.

 

Corporate business travel In Asian markets will continue its growth despite current economic weakness in Europe. Business travel in China is expected to grow by 17 per cent and 21 per cent respectively in 2012 and 2013, and China will overtake the United States as the world’s largest business travel market by 2015[8].

 

“What we have seen across Asia is that corporate business travel is now developing a second wing which is essentially domestically generated. The first wave of business travel growth has always been related to investments and trade between Asia and rest of the world. The second wave is now triggered by the rapid growth of the domestic demand in many large countries across Asia like Indonesia and China. Given the large capacity injected by airlines, the main increase in business travel spend in Asia will be from more trips as opposed to higher yield in the near term,” said Mr Ho.

 

Online travel agencies growing faster than airline websites

 

Online travel agencies (OTA) continue their dominance in online travel retail sales. Globally, online travel retail sales experienced a strong 11 per cent increase in 2011 as a result of a general shift in bookings from high street travel agencies to online travel retailers. Online travel retail in Asia Pacific still has much room for growth as healthy economic growth and the rise of e-commerce continue to favour the travel and tourism industry[9].

 

OTAs are additionally experiencing faster growth than supplier websites, leading all travel categories in terms of monthly unique visitors, attracting more than twice as many visitors as airline websites[10].

 

“Airlines need to consider how they can effectively leverage the growing online platform better. OTAs are showing continued proliferation, demonstrating that they maintain a strong channel by which airlines can broaden their customer and transaction base,” said Mr Ho. “Increasingly, we are seeing successful Asian OTAs branching out of the home market to seek out opportunities in other Asian markets. Via, for example, has ventured out of India and leveraged the Abacus technology platform to form a highly successful OTA and B2B agency business in the Philippines. MakeMyTrip India has also established a presence in Singapore. The next wave of OTA growth will be driven by successful OTAs seeking to form pan-Asian partnerships to push the next envelop of growth from a fragmented OTA scene to one with the best OTAs forming a truly pan-Asian franchise.”

 

Asia is still a continent of group travellers

 

In Asia, the propensity to travel in Groups continues unabated due to the huge diversity in culture and local practices which encourages a large segment of travellers to seek security in numbers.

 

“Asia continues to be a fertile ground for Group travel as evidence by Abacus’ double-digit percentage growth in group transactions across Asia in the first half of 2012,” said Mr Ho. “We observed that in many Asian countries such as Singapore, Malaysia, Indonesia and others, consumers like to purchase packages in mega travel fairs. In addition, with the accumulation of wealth in emerging markets such as Vietnam and Cambodia, travel has been a priority for this category. Often, the first wave of such travellers travels in groups.”

 

Social media and mobile technology pave the way for the future

 

The proliferation in the use of technology such as social media and mobile amongst consumers continues to be a significant area that airlines seek to leverage on, as these technologies pave the way of the future.

 

Social network users in Asia Pacific are expected to reach 616 million users by the end of 2012 and 854 million in 2014[11] while it is estimated that there are 2.9 billion mobile subscribers in Asia Pacific, compared with 969 million in the Americas and 741 million in Europe[12].

 

“These numbers represent a great opportunity for airlines in Asia Pacific to adopt these technologies and build brand engagement and preference among consumers,” said Mr Ho. “Traditionally, we tend to see Asian airlines lag behind their counterparts in other markets in the adoption of new technology. However, we will see this situation change as mobile use and Internet penetration in this region continues to grow. Given the current global trajectory, there will be more users accessing the Internet through a mobile device than through a desktop computer by 2015. Everyone in the travel eco-system will need to learn how to leverage the opportunities that come with it.“

 

“A key priority for most airlines now is the deployment of mobile solutions in order to boost customer engagement and provide m-Commerce facilities so that customers can conduct transactions such as flight bookings and ancillary purchases more easily,” Mr. Ho added.

 

Airline business models evolve against a changing consumer landscape

 

Airlines are continuing to focus on using multi-channel distribution as a way to maximise their yields. At the same time, airlines are also relooking at their business model to determine how they can best leverage ancillary services as it continues to play a bigger role in generating revenue.

 

This has led to the increase in hybrid categories that sit somewhere between the ultra low-cost and full-service model. Increasingly, we have seen full-service carriers moving towards adopting multi-brand strategies that could include owning a portfolio of airline brands under the same airline group, so as to allow traditional full-service airlines to form hybrid/LCC business lines to capitalise on the best of both the high-yield and low-cost customer segments. The reverse is also true as airline companies that started out as LCCs have later evolved into a hybrid or almost full-service model – JetBlue and Virgin Australia are two such examples.

 

“We will see many more traditional full-service carriers adopt a multi-brand strategy to reach out to different segments of the markets. For example, Thai Airways is launching Thai Smiles in July 2012 as a regional hybrid airline sub-brand that is closer to Silk Air’s market positioning while at the ultra low-cost spectrum, Thai Airways can now leverage their subsidiary airline Nok Air. In June 2012, we also saw the launch of Scoot, the new long haul LCC owned by Singapore airlines while Garuda has their own LCC brand Citilink to compete against other LCCs in Indonesia. In North Asia, we are also seeing such multi-brand strategies in play as Asiana Airlines’ subsidiary LCC Air Busan & Korean Airlines-owned LCC Jin Air expands out of Korea,” Mr Ho said.

 

On the other hand, airlines that started out as pure play LCCs have adopted a multi-brand strategy to tap the higher end of the travellers’ chain – one great example is Lion Air, currently the largest domestic airline in Indonesia. Lion Air started out as an LCC but has recently announced the formation of Batik Air (to be launched in 2013 with B787s) which will tap the premium travellers segment. In addition, Lion Air has announced the formation of Lion Bzjet, a private jet charter company (with two Hawker Beechcraft 900XP aircraft) to cater to high end corporate and individual customers.

 

“We can begin to see a merger of the business model at the hybrid category from both ends of the spectrum. It is important for airlines to capitalise on the changing landscape to ensure continued growth in this highly competitive climate,” stated Mr Ho.

 

Mr Ho also weighed in on the current chatter about the viability of the long haul LCC model: “One of the biggest debates today is whether or not the long-haul LCC model can be sustainable. Jetstar International has proven that the low fares long-haul model can be achieved but this could be a unique example as we have seen Oasis Hong Kong and even AirAsia X cut back from their long-haul ambition. It is generally true that the long-haul LCC model inherently faces greater challenges due to the greater fuel burn – fuel could account for 30% of cost in short haul sectors but could rise to 50% in long haul sectors – and if yield cannot go up sufficiently, it will be tough to be profitable even with good loads.”

 

“With the potential of turmoil in the global economy, airlines need to be on the pulse of evolving trends and opportunities, new technologies shaping the industry as well as tools to help them thrive and ensure long-term growth in the market,” Mr Ho concluded. “Abacus recognises the changing needs of its airline partners and has been on the cutting-edge of developing solutions that help to maximise profits and increase productivity. Solutions such as Abacus SmartPrice and Abacus FareX provide airlines with greater accuracy, content and efficiency in areas such as air pricing and net fares management.”

 

 

[1] International Air Transport Association (IATA)

[2] International Air Transport Association (IATA)

[3] China National Tourism Administration

[4] Hotel Room Supply, Capital Investment and Manpower Requirement by 2021, by HVS and The World Travel & Tourism Council (WTTC), India

[5] eGlobal Travel Media 2012

[6] Euromonitor 2012

[7] Indonesia tourism growth could hit at infrastructure deficiencies, Travel Daily News

[8] Global Business Travel Association

[9] Healthy Performances for Online Travel Agencies in 2011, Euromonitor International

[10] PhoCusWright 2012

[11] eMarketer, May 2012

[12]International Telecommunication Union, November