Are we there yet? Why air travel isn’t back to normal

AFTER 2 years of being land-locked and exhausting Netflix’s entire catalogue, travel-starved Singaporeans have been hopping on planes in droves. A similar phenomenon is playing out across the globe as more and more countries relax border curbs. Revenge travel, it seems, is alive and kicking.

It’s a far cry from the scenes set during the height of the pandemic, when international airports fell eerily quiet, airlines struggled to stay afloat and grounded aircraft grew dusty.

According to the International Air Transport Association (Iata) – which represents 290 airlines comprising 83 per cent of air traffic worldwide – global air traffic (measured in revenue passenger kilometres) currently hovers at about 70 per cent of pre-Covid levels. In June, air traffic surged around 76 per cent year on year as travellers took to the skies with a vengeance. Meanwhile, the reopening of borders in the Asia-Pacific region is expected to give a recovery a further shot in the arm.

In a dramatic turnaround, Singapore Airlines (SIA) posted an operating profit of S$556 million for the 3 months ended Jun 30, 2022 (Q1 FY2022/23) – the second-highest quarterly profit in the flag carrier’s history. This came after it bled S$67 million in losses in the previous quarter and S$274 million in the corresponding quarter a year ago. And as pent-up demand nudged airfares upwards, passenger yields at the parent airline rose 3.4 per cent quarter-on-quarter to 12.3 Singapore cents/passenger-km (pkm).

SIA’s group capacity has jumped from 47 per cent of pre-pandemic levels in Q4 FY21/22 to 61 per cent in Q1 FY22/23. This is expected to climb further to 68 per cent in Q2 FY22/23 and upwards to 76 per cent by Q3 FY22/23. The flag carrier tells The Business Times (BT) that it will continue to adjust its capacity as growth opportunities emerge.

A spokesperson for SIA says: “Forward booking momentum is expected to remain robust in the near term as we head into the year-end holiday travel period, with forward sales staying buoyant up to October. SIA continues to see strong demand across all cabin classes, as well as various travel segments.”

For the month of July, the SIA Group carried over 2 million passengers, marking the first time that passenger numbers have surpassed the 2-million mark since the pandemic. With capacity hovering at 67 per cent of pre-Covid levels, passenger load factor (PLF) clocked 87.4 per cent. And with the peak summer travel season in full swing, demand was strong across every route in the region save for North-east Asia – where some key markets, such as China and Japan, are still imposing travel restrictions.

Airports under pressure

But the robust recovery in global air travel has also caught some major air hubs in Europe and North America off guard, resulting in flight delays and cancellations as well as snaking queues at certain airports. Heathrow has been forced to cap the daily number of departing passengers to 100,000 in the wake of delays, extended queues and baggage issues, while Amsterdam’s Schiphol has been besieged by lengthy delays, prompting it to recently roll out a compensation programme for travellers who missed their flights. Among other things, Schiphol’s compensation package covers a replacement flight, accommodation and additional travel expenses for those stuck waiting in a queue as their flight departed without them.

The majority of airports, however, are operating normally, Iata highlights.

Philip Goh, Iata’s regional vice-president (Asia-Pacific), says: “A faster-than-expected rebound in demand has put pressure on airports facing insufficient skilled manpower. Workers are falling ill due to new waves of Covid-19 variants. Skilled airport and airline staff have left the aviation industry during the past 2 years when the pandemic forced layoffs across the aviation sector. Adding new aviation workers takes time as specialised skills require training, while labour industrial actions and delays in security clearances for new aviation workers add to the staff shortage.”

Here in Singapore, the aviation industry lost about a third of its 35,000 workers during the pandemic.

Describing the travel disruptions at airports in London and Amsterdam as “regrettable”, Goh stresses that airports and airlines have to work together closely to manage and react to the situation on the ground. “Close consultation and collaboration, and exercising flexibility on slot usage must be given priority,” Goh adds.

Slot usage is another issue that could further compound travel disruptions. In a bid to restore operations to pre-pandemic normalcy, the European Commission plans to reinstate the 80-20 slot-use rule – which requires airlines to operate at least 80 per cent of every planned slot sequence – this winter season in the European Union. But Iata warns the move is jumping the gun; congestion at airports could snowball as airlines are forced to restore capacity to protect their slots. The slot-use threshold this summer stood at just 64 per cent, and even then, major airports found themselves floundering.

Goh goes on: “Asia-Pacific has largely been spared the pain so far. A later start to market reopening than Europe and North America has been a blessing in disguise. Airlines and airports in Asia-Pacific are mostly a long way from pre-pandemic volumes.”

Still, the pain points suffered by airports and airlines in other regions can be held up as a learning experience for the Asia-Pacific. In Singapore, for instance, the Civil Aviation Authority of Singapore (CAAS) has launched an industry-wide recruitment drive to fill roles at airlines, the airport, ground handlers as well as security agencies, Goh points out.

In response to queries from BT, a spokesperson for Changi Airport Group (CAG), says: “Globally, many airports are still facing an acute shortage of manpower. Our various airport partners have been recruiting more staff to serve passengers better. With Terminal 4 restarting operations in September and Terminal 2 commencing departure operations in October, the enhanced capacity at Changi Airport, coupled with the increased manpower, will help us prepare for the next travel peak at the end of the year.”

For now, the airport operator still advises passengers to arrive at Changi up to 3 hours before their flight, given that many countries still require Covid-related documents and travel declarations which have to be examined by staff upon check-in.

Mayur Patel, head of Asia for OAG Aviation, notes that manpower has posed a major headache for all airports – including Changi – which has made it hard for airlines to reinstate capacity at 2019 levels. “Qatar Airways and Emirates, for example, have not been able to reinstate all their capacity from Singapore to Doha and Dubai respectively due to manpower issues and other considerations,” he says.

By OAG’s calculations, Changi Airport will be operating 63 per cent of its 2019 capacity (based on the number of seats) for the August-December period.

Singapore’s flag carrier updates passengers about any changes to their bookings or flights as soon as possible, a spokesperson for SIA says. “We work closely with our partners to minimise any disruption to our customers’ travel plans. If customers’ bookings are cancelled due to the restrictions imposed by the airport authorities or the regulators, they have the option of choosing between a full refund of the unused portions of their tickets, or rebooking their flights.”

For its part, the carrier kick-started a recruitment drive for cabin crew in February after a 2-year hiring freeze and aims to hire some 2,000 cabin crew for the financial year ending March 2023. In contrast, in September 2020, the group announced it was shedding about 3,900 positions, or about 20 per cent of its headcount, across SIA, SilkAir and Scoot, as the pandemic paralysed the travel industry. (SilkAir has since been folded into SIA.)

Interestingly, there has been keen interest for cabin crew positions, with the airline receiving several thousand applications. It has recruited around 1,300 trainees so far.

Meanwhile, the Singapore-based cadet pilots who had their training disrupted during the pandemic will resume training progressively from October. SIA plans to resume cadet pilot recruitment before the end of this year. 

SIA’s wholly-owned budget carrier Scoot has been recruiting both pilots and cabin crew, and is reportedly looking to hire around 900 cabin crew by the end of this financial year.

Airlines still in the red, but on runway to recovery

But even with the surge in pent-up travel demand and the accompanying jump in air fares, the world’s airlines are still expected to spill red ink this year to the tune of some US$9.7 billion, albeit narrowing from massive losses of US$42.1 billion in 2021 and US$137.7 billion at the height of the pandemic in 2020.

Global passenger numbers are projected to hit 83 per cent of pre-Covid levels this year. However, airline capacity has yet to return to pre-crisis levels, which means passengers end up paying a premium for airfares in the name of revenge travel – something they seem perfectly willing to do, flush with accumulated savings over the last 2 years. At the same time, airlines are also facing significant cost pressures and are forced to pass these costs onto travellers.

Fuel, for instance, comprises nearly 25 per cent of all costs for carriers. Iata estimates that the global airline industry is facing a fuel bill of US$192 billion this year, nearly doubling from US$103 billion in 2021, on the back of elevated oil prices. The cost of labour is also eating into profit margins, with the industry’s wage bill projected to rise nearly 8 per cent year on year to US$173 billion, outpacing the 4.3 per cent increase in the number of jobs. Aside from fuel and manpower, the cost of raw materials and of supplies have gone up, while the stronger greenback may also compound headwinds.

Still, assuming that a global recession and inflation does not derail the recovery in the aviation sector, Iata projects that the airline industry could drag itself out of the red and swing back into the black in 2023.

In June this year, Changi Airport handled 2.93 million passengers, which represents 50 per cent of pre-Covid traffic levels. But things are moving in the right direction. In the second quarter of this year, the airport saw 7.33 million passengers, or 14 times the number of travellers in the corresponding quarter in 2021 when border curbs remained very much in place. According to CAG, the leading 5 destinations for travellers, going by inbound and outbound traffic flows, are Kuala Lumpur, Jakarta, Bangkok, Manila and Sydney.

After nearly 2 years of being island-bound, pent-up demand from Singapore residents has translated to a spike in air fares across airlines. Outside of Singapore, travellers elsewhere face a similar issue.

“Our airfares are determined by demand and supply, and therefore are dynamic and subject to change,” a spokesperson for SIA says, adding that lower fares are still available beyond the peak periods. “SIA has seen strong demand for our flights, with the reopening of borders around the world. This is for both leisure and business traffic across our network, and across all cabin classes.”

“As Singapore reopened its borders in April, capacity building was gradual, and home-based carriers SIA and Scoot had an advantage in restarting their services based on the schedules they have been able to operate with the Vaccinated Travel Lanes (VTLs), along with up-gauging of frequency,” explains OAG’s Patel. “As a result of this, airfares have been dynamic and very much based on demand for specific destinations.”

OAG estimates that airfares to Europe and the Americas have at least doubled – if not, more than doubled – from pre-pandemic levels, on the back of limited capacity as well as the jump in jet fuel prices.

“There is still significant frequency to destinations within South-east Asia, such as Malaysia, Thailand and Indonesia, where demand can be generated for short breaks,” says Patel. “North-east Asian markets – such as China, Hong Kong, Macau and Taipei – are down, largely due to strict quarantine measures, but we will see a gradual reopening for Hong Kong before November as it eases quarantine measures.”

But the big question on travellers’ minds might well be when airfares are going to drift back down to earth. After all, persistently sky-high airfares aren’t ideal for airlines either, as it could result in demand destruction. Industry players reckon it will take a normalisation of capacity levels, as well as a tapering-off in the frenzied travel demand that has built up in recent years.

Patel sees airfares retreating to 2019 levels towards early 2023 as more capacity is injected into the market.

He adds: “As more airlines rebuild their capacity and key North-east Asia markets reopen, (this) will enable hub carriers to reinstate many of their services, allowing for greater connectivity.”

And more competition, he concludes, ultimately means more options for consumers.