Asian carriers are raising international passenger capacity at faster pace than industry

ASIAN carriers increased their capacity for international travel by 27.5 per cent in the year to October, compared with the same 10-month period the year before. This outpaced the industry’s 13.8 per cent growth, the latest data from the International Air Transport Association showed.

Published last week, the trade association’s monthly air-passenger analysis showed that the year-on-year rise in international passenger capacity – measured in available seat kilometres – by Asia-Pacific airlines was 17.2 per cent in October.

In contrast, the wider industry’s capacity increase for the month was only 8.6 per cent.

Since China and Hong Kong fully reopened their borders in 2023, airlines in the region have been accelerating their ramp-up of international passenger capacity.

A check on the Cirium aviation analytics database of seven full-service Asian airlines, inclusive of their scheduled flights for December, showed that China Eastern Airlines deployed 89.7 per cent more capacity outbound from mainland China this year, compared with last year.

Singapore is the Chinese airline’s Number Two market after Paris, ahead of Sydney, London and Moscow, in 2024. In 2023, the city-state was behind Sydney but ahead of Melbourne, London and Auckland.

Meanwhile, Hong Kong carrier Cathay Pacific has ramped up passenger capacity by 30.5 per cent this year, with London, New York and Sydney its top three markets in both 2024 and 2023.

Singapore Airlines (SIA) has raised its passenger capacity by 14.1 per cent in 2024, the data showed, while Korean Air Lines and All Nippon Airways (ANA) have grown theirs by 13.2 per cent and 12.1 per cent, respectively.

SIA’s top five markets for the year are London, Sydney, Melbourne, Frankfurt and San Francisco. This list is unchanged from 2023, with the exception of fifth place, which went to Brisbane previously.

For Korean Air Lines, its top markets for 2024 are New York, Los Angeles, Bangkok, Singapore and Atlanta.

Honolulu, New York, Frankfurt, Los Angeles and Sydney are ANA’s top five international passenger markets in 2024. Last year’s ranking was slightly different: Frankfurt, Honolulu, Los Angeles, New York and Sydney.

The data also indicated that Eva Air and Japan Airlines raised their international passenger capacity this year by 7.9 per cent and 5.6 per cent, respectively, compared with last year.

Both carriers’ dedicated capacity to Chicago saw the US city climb to the fifth spot among their top markets this year, replacing Paris for Eva Air and Toronto for Japan Airlines. Their top four markets were unchanged from last year.

Pressure on yields

Higher capacity would generally exert downward pressure on yields, unless the addition to supply is outpaced by demand.

Indeed, SIA said in an earnings briefing last month that all its routes had experienced a yield moderation in light of greater supply in the market.

The carrier would, however, not shy away from raising capacity in the face of competition, chief commercial officer Lee Lik Hsin had said, in response to a question on whether the airlines would add significantly less capacity or hold back supply.

The group, including budget airline Scoot, increased passenger capacity by 9.7 per cent for the second quarter of FY2025 to September, and 11 per cent for the first half of the financial year.

The group’s passenger capacity relative to pre-pandemic levels was not provided at the earnings briefing. However, SIA had said last year that it expected to achieve pre-pandemic capacity by the end of March 2025.

Transportation and supply chain management professor Rico Merkert from the University of Sydney noted that SIA’s passenger load factor in October was a “comfortable” 86.1 – down by only 0.9 percentage point year on year – despite the 13 per cent capacity increase for the month.

The passenger load factor measures how much the airline’s passenger capacity has been utilised.

He added that SIA has room to further ramp up its capacity, as the breakeven load factor for the full-service airline was 81.1 per cent for the quarter to September,

“Yes, passenger yields would likely decline a little, but passenger numbers have gone up, too. And the competition is not sleeping – if they add capacity, it is often worth defending market share, especially in the premium segment,” he said.

“Our research has shown that it is more difficult and costs more to win new premium or business passengers than doing anything to keep them.”

The academic added that investors should take a holistic look at airline businesses by including the freight side.

Shukor Yusof, an analyst at Endau Analytics, pointed out that yields being under pressure is nothing new – this had occured pre-pandemic at many airlines, including SIA and the Gulf carriers.

For SIA to “reach optimal yield and load factor balance, it needs to constantly monitor and ‘juggle’ the inflection point between airfares and allocation of seat (capacity) based on the types of configurations in each aircraft”, he said.

“For instance, (SIA) has different seat configurations for its fleet of A350 jets, depending on the destination. Clearly, Europe (especially London Heathrow) gets the most attention.”

He added that increasing capacity is not the only way to increase profits, as careful integration of aircraft scheduling, routing and crew management would also help to optimise yields.

Mohshin Aziz, equity analyst at Bank Islam Malaysia Securities, said airlines probably should not stop launching new routes and raising capacity in the face of dipping yields. This is considering the planning and resources involved, such as negotiating bilateral agreements and securing landing slots at airports.

For SIA and other premium airlines that are focused on long-term prospects, quarter-to-quarter yield changes are not important, said Mohshin, who is also the former director of Pangolin Aviation Recovery Fund, which invests in aviation businesses.

“Their business philosophy is to always be the premium airline of choice.” Providing capacity, flight frequency and quality service is what a premium airline is expected to deliver, he added.

Scoot’s capacity, meanwhile, has dipped in recent months – 5.4 per cent and 3.2 per cent year on year in September and October, respectively. This was even as the full-service airline’s capacity was up 14.5 per cent and 13 per cent in the same months, based on the group’s latest published statistics.

A Scoot spokesperson told The Business Times: “Like other airlines, Scoot has been affected by industry-wide supply chain challenges. However, this has had minimal impact on our operations due to the proactive measures taken to mitigate these issues.”