Excess expected as airlines ramp up capacity to capture post-Covid travel

Competition between airlines will be intense because capacity will likely exceed demand for some time


AIRLINES are preparing for increased demand for travel as the world opens up in the wake of the pandemic, but analysts expect the recovery will be gradual and excess capacity will be a problem.

However, the demand for domestic flights is expected to recover much faster.

Sobie Aviation Pte Ltd analyst and consultant Brendan Sobie said some airlines are eager to add back capacity and improve utilisation of aircraft and crew as more countries open up.

But once the domestic and international markets start to reopen, he said competition between airlines will therefore be very intense because capacity will likely exceed demand for some time.

“New airlines are also planning to enter the market and if they launch, (this) will further intensify competition. I am concerned about overcapacity in the industry, which was a problem in Malaysia prior to the pandemic and has a long-term impact on airlines.

“Malaysia needs a healthy and viable airline industry over the long term as the industry has gone through an extremely difficult 18 months and is now facing a recovery phase that could be very challenging as well as long,” he told The Malaysian Reserve (TMR).

Interstate travel is allowed for all fully vaccinated Malaysians from today, said Prime Minister (PM) Datuk Seri Ismail Sabri Yaakob (picture) in a special televised address yesterday.

He said international travel and domestic tourism are also fully open, and Malaysians no longer have to apply for MyTravelPass approval to travel overseas.

Meanwhile, Pangolin Investment Management analyst and director Mohshin Aziz sees strong demand for cargo to encourage applications for new licences, however, he is not aware of new interest to start passenger airlines.

“Cargo rates are incredibly high right now, very good business. That’s driving the demand,” he told TMR.

Hong Leong Investment Bank Bhd analyst Daniel Wong said the licence for cargo has caught many interest due to increasing e-commerce volume.

He said airlines are anticipating international flights to restart at a slow pace. Depending on the country, there will be people wanting to travel, but selectively.

“Don’t expect to go back to pre-pandemic level. New type of virus, standard operating procedures, recognition of vaccination certificates, case spread, healthcare system in different countries (are) among the challenges,” he told TMR.

Meanwhile, Sobie said the recovery and resumption of international travel will likely be gradual since not every destination will be open in the initial phases of the reopening.

“Almost all Asia-Pacific countries have not yet reopen to visitors. Other regions are more open, but long-haul travel is much more expensive than regional travel. International travel is also more complicated and less convenient than it was prior to the pandemic, which can further impact demand.

“Requirements for returning travellers can also impact demand. For example, if Malaysia requires quarantining when returning, even having to quarantine at home — while a more attractive and less expensive option than quarantining at a hotel or facility — impacts demand.”

Sobie opined that the question of first choice of destination would imply that all destinations are possible, which he foresees will not be the case at all.

“So, it becomes a question of whether Malaysians are interested in travelling to those destinations that are open and if they find the requirements too onerous. Hence, the volume of international passengers will be rather small for at least a few months and perhaps longer.”

Mohshin believes airlines can expect a pick up in demand for air travel due to pent-up demand, which he is sure would be strong although hard to quantify.

“Malaysians will try to travel to places with the least amount of hassle, restriction and cost. Places where you can enter freely, no need to quarantine and an acceptable level of bureaucracy or testing cost, those will be the main destinations.

“My personal view, Muslims will flock to Saudi Arabia. The rich elitists will go to London and some will go to the US too. I think Australia, New Zealand, Hong Kong and Japan remain closed, so Malaysians won’t be able to go as yet.”

Aviation consultancy Endau Analytics founder Shukor Yusof said airlines can see a slight rise in passenger numbers as it coincides with year-end festivities and holiday sentiments.

However, he believes air travel will be more expensive and also tedious due to health protocols at both ends of the journey.

“Only those who can afford it will fly internationally. Others may be satisfied with local destinations. Domestically, it would be East Malaysia. Beyond that, London, Dubai, Korea, Japan depending on the entry requirements.

“The risks include getting infected by Covid-19 during the trip and having to put up with strict measures at public places,” Shukor said.