Air travel may recover in 2H21

IATA forecasts a return to 2019 traffic levels by 2024 or earlier in South-East Asia due to fast-developing economies

by RAHIMI YUNUS / graphic by MZUKRI MOHAMAD

AIR travel, particularly for the domestic market, is expected to see significant recovery only from the second half of 2021 (2H21) once the Covid-19 pandemic is put under control with smooth deployment of the vaccine.

PricewaterhouseCoopers partner Edward Clayton said initial flyers would most likely be visiting friends and relatives, also known as VFR, and be on business, work or education trip.

He said mass tourism will come later as countries that have closed down their tourism sector are unlikely to risk opening it up again quickly due to new waves of Covid-19 infection. Clayton said the idea of travel bubbles between countries is not as easy to execute.

“We can expect that at best, 2021 will be a year of two halves, with travel continuing to be depressed until mid-year. If vaccinations are working well, there will be a significant pick-up in travel in the 2H, but still with restrictions,” Clayton told The Malaysian Reserve (TMR).

He said the extra cost of tests, vaccination certificates and gaining travel permission are among factors that would weigh travel down.

He added that changes in travel restrictions that may happen rapidly and the risk of Covid-19 exposure would still affect consumers’ confidence to fly.

Assuming the rolling out of vaccines goes well, Clayton said the aviation industry may see a major recovery in 2022.

“Historically, after disruptions such as the 9/11, 2008 global financial crisis and the 1991 Gulf War, there have been major recoveries after an initial traffic reduction.

“Therefore, it is possible that 2022 will be as strong as, if not stronger, than 2019 on the demand side,” he said.

However, he said many airlines have retired aircraft and staff, which is likely leading to capacity shortages once the recovery starts and hence, slowing down the pace of recovery.

He further said that could result in higher airfares, so airlines are likely to have a profitable period once the recovery gets fully underway, although it would not be enough to compensate for their losses.

Based on current scenarios and economic forecasts, he said demand will continue to be strong from 2022 to 2023, assuming that the vaccination programme results in Covid-19 no longer an issue.

The International Air Transport Association (IATA) is forecasting a return to 2019 traffic levels by 2024. This may come back earlier in South-East Asia due to the fast-developing economies here than in the West.

“I would expect 2023 passenger numbers to exceed 2019 in this region, and 2024 to be a record year, assuming that there is sufficient airline capacity,” Clayton said.

He said the rise of video conferencing amid the pandemic would, however, reduce business travel by 25% to 33%, which would cause airlines to lose their most profitable traffic.

On the flip side, he said people are more likely to incorporate travel into their lifestyles to do their job anywhere they want and this would increase lifestyle travel.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said airlines and governments should expect and plan for domestic markets to the first movers.

He said Asia is likely to recover faster from Covid-19 than Europe and America, and demand could return to 2019 levels within the next three to four years, depending on the success of vaccination exercise among countries.

“The growth of demand will be on domestic and intra-Asia routes. As for intercontinental routes to Europe and the Americas, I expect it would recover at a significantly slower rate.

“The best case is that such routes can be back to the 2019 levels in 2025 or 2026, depending on vaccine effect and percentage of population vaccinated,” Elnæs told TMR.

As of today, he said it seems there is light at the end of the tunnel, but that too is fragile, and the industry is recommended to have a conservative approach on recovery.

With the changes in travel behaviours, he said up to 40% of the lucrative business traffic can be stalled and the leisure travellers may plan for vacations closer to home.

“Turbulent times ahead can be expected for airlines that do not have a solid capital base, and I am sure there will be a number of casualties going forward,” he added.

He said the airline industry will rise again, but only time will tell.

Transport Minister Datuk Seri Dr Wee Ka Siong recently said airlines in Malaysia could take three years to bounce back from the pandemic, depending on the outbreak in the country and abroad.

He said the Malaysian Aviation Commission revised downward the projections for passenger traffic this year to 26.6 million, down 75.6% from 109.2 million passengers in 2019.

He also said passenger demand had fallen from 280,321 per day in January to 59,378 per day in September.


Read our earlier report

Airline industry likely to recover by mid-2021

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