2018 – A stable period of growth for the global airline industry
In February 2019, the International Air Transport Association (IATA) revealed global passenger traffic results for 2018 showing that demand (revenue passenger kilometers or RPKs) rose by a healthy 6.5% compared to full-year 2017.
Although this had represented a slowdown compared to the 2017 annual growth of 8.0%, it was another year of above-trend growth. Full-year 2018 capacity climbed 6.1%, and load factor edged up 0.3 percentage points to a record 81.9%, exceeding the previous high set in 2017.
2018 appeared to have been largely free from many of the shock events that affected global passenger traffic over the past two decades such as terrorist attacks, major economic recessions, epidemics, natural events (e.g. Eyjafjallajökull Volcanic Eruptions of 2010) as well as major wars.
Notably, for the year 2018, there appeared to be a steep decline in ISIS attacks in Iraq - ISIS was in a much weaker position than ever - and fewer mass casualty attacks in Western Europe.
Two charts below show the impact of shock events disrupting airline traffic in previous years – one on a regional scale (Europe) and one on a global scale.
Source: IATA Economics
Source: Boeing and ICAO Scheduled Traffic (Sept 2015) & IATA 2017. Graphic Source: Air Lease Corp Investor Day Presentation October 2019, 2017
How the year 2019 compares
Over the past two decades, the growth of airline passenger traffic had been significantly affected by various “shock factors” that had occurred on a global scale or on a regional scale. Based on recent political events, it appears that the health of the industry is facing a new challenge for the year 2019.
While 2019 has seen less of major armed conflict and terrorist attacks, events in the Asia-Pacific disruptive to air travel have taken on a more political nature.
The roots of these political events (e.g. the Japan-South Korea dispute, unresolved political status of Taiwan, Hong Kong protests) often stem from unresolved issues from history.
Meanwhile, the on-going trade war between China and the United States appears to be a power struggle between two countries for global leadership in the future world order.
These political tensions have gradually created a negative impact on the air transport industry of the region, which this paper aims to outline.
While the impact of the events mentioned above are still largely confined to the Asia-Pacific region (and to some extent the United States) , in the past month, there have been signs that certain events happening in Europe and Latin America may pose a similar threat to the aviation industry as time progresses.
We will now proceed to describe these events of 2019 that have created much challenge to the growth of the air transport industry.
Trade War: China vs United States (March 2018 – Present)
The China-United States Trade War is an on-going politico-economic conflict between China and the United States, with both countries setting tariffs on each other’s exports.
Chinese containers at a port in Los Angeles (Photo Credit:Mark Ralston/AFP/Getty Images)
The trade war has largely led to a deterioration of the bilateral relationship between the two countries.
While the most visible impact of this trade war in terms of air transport is in the area of cargo traffic, the trade war has also resulted in a decrease in the number of Chinese tourists to the United States, which has in turn affected the air transport and other related sectors.
According to IATA, Asia-Pacific airlines saw demand for air freight contract by 5% in August 2019, compared to the same period in 2018. This 5% decline has been attributed mainly to the trade war between China and the United States, even though the temporary shut-down of Hong Kong International Airport – the largest cargo hub in the world – was also a key factor.
Alexandre de Juniac, IATA's Director General and CEO commented, “The impact of the US-China trade war on air freight volumes was the clearest yet in August (2019). Year-on-year demand fell by 3.9%. Not since the global financial crisis in 2008 has demand fallen for 10 consecutive months. This is deeply concerning. And with no signs of a détente on trade, we can expect the tough business environment for air cargo to continue. Trade generates prosperity. Trade wars don’t. That’s something governments should not forget.”
On the tourism front, the National Travel and Tourism Office of the United States had reported that while the number of Chinese visits tripled between 2000 and 2010—from 249,000 visits to 802,000—and tripled again between 2010 and 2015. However, the United States received 2.9 million Chinese visitors in 2018, down 5.7% from the year before.
Chinese Tourists in the USA (Photo Credit: Reuters/Lucas Johnson)
While the decline in Chinese tourists to the United States could be attributed to the difficulties in the Chinese domestic economy, there had also been travel warnings on travel to the United States issued by the Chinese government to Chinese nationals, citing shootings, robberies and high healthcare expenses.
The lacklustre tourism figures to the United States also forced Air China to suspend its flights on the Beijing-Hawaii route in August 2019. Passenger load factor for Air China's thrice-weekly Beijing-Honolulu route averaged 66.4% in 2018, according to Chinese aviation data provider Variflight. This figure was much lower than the average of 76.7% for all of Air China’s international flights in 2018.
Air China Aircraft (Photo from Wikipedia)
Hong Kong Protests (June 2019 – Present)
Anti-government protests that were sparked off by proposals for the introduction of a controversial bill allowing for criminal suspects to be extradited to mainland China under certain circumstances began peacefully in Hong Kong in June 2019.
However, clashes between the police and activists turned violent, with police using tear gas and rubber bullets to suppress protestors. On the other hand, protesters had turned to attacking police officers, throwing petrol bombs and carrying out widespread destruction of public property.
Over the past few months, the violent riots in Hong Kong, with little hope of an immediate resolution, have badly affected Hong Kong’s reputation as a safe city.
Hong Kong International Airport itself was not spared from the protests, with protestors occupying the airport terminal and disrupting surface access to the airport on occasions. The airport had to shut down on a few occasions and cancel a significant amount of flights.
Protestors at Hong Kong International Airport (Photo Credit: Laurel Chor/EPA-EFE)
Needless to say, tourism and air travel to Hong Kong have been badly affected by the protests - Airport Authority Hong Kong announced that for the month of September 2019, Hong Kong International Airport handled had 4.9 million passengers and 33,390 air traffic movements, representing year-on-year declines of 12.8% and 1.0%, respectively.
The Airport Authority had also revealed its biggest year-on-year decline in monthly travellers in a decade, with a drop of 12.4% or 851,000 travellers – in August, typically a time of high demand.
Many airlines have already reduced or cut their services to and from Hong Kong as many routes have become unprofitable due to declining passenger numbers.
Cathay Pacific’s passenger numbers stood at 2.42 million in September, down 7.1% year on year, and in terms of load factor, its planes were only approximately three-quarters full – or down 7.2 percentage points to 73.6%.
Cathay Pacific Aircraft at Hong Kong International Airport (Photo from Wikimedia Commons)
Foreign carriers such as Qantas Airways have also been hit by a demand drop, with the Australian carrier switching to smaller planes on the Hong Kong route.
China’s Cancellation of Solo-Traveller Visas to Taiwan (August 2019 – Present)
On 31 July 2019, it was reported in the South China Morning Post that China’s Ministry of Culture and Tourism said that it would stop issuing individual travel permits to people in 47 mainland Chinese cities because of the poor state of relations with Taiwan.
According to an industry insider, Beijing’s ban on solo travellers visiting Taiwan could result in 700,000 fewer arrivals over the next six months and cost the self-ruled island NT$28 billion (US$900.5 million) in lost revenue.
The announcement on the travel restriction came five months ahead of Taiwan’s presidential election in January 2020 and amid tense relations between mainland China and Taiwan.
Japan – South Korea Trade Dispute (July 2019 – Present)
The 2019 Japan –South Korea Trade Dispute is an ongoing economic conflict between the world's third and eleventh largest national economies, Japan and South Korea.
Japan-South Korea Trade Dispute (Photo from Shutterstock)
A cause of the conflict included a Japanese rejection of late November 2018 rulings by the Supreme Court of South Korea that 10 forced labour victims were able to claim compensation from many Japanese companies. The Japanese government also claimed that the South Korean government was not complying with export control security regulations and had ignored the Japanese government's request to have a bilateral trade dialogue for three years.
The Japanese restrictions on the exports of high-tech materials to South Korea, its removal of South Korea from its export “white list”, as well as South Korean boycotts of Japanese goods (and tourism to Japan) had negative impacts on both economies.
In particular, airline traffic between Japan and South Korea was badly affected by the dispute.
The number of South Korean tourists visiting Japan fell by 48% in August to 308,700, the lowest number since May 2016, according to Japan National Tourism Organization (JNTO).
According to OAG, weekly one-way scheduled airline seat capacity between Japan and South Korea fell from close to 250,000 in early April 2019 to slightly above 210,000 by the end of Sept 2019. The greatest plunge in weekly one-way scheduled airline seat capacity was seen in late August 2019.
In total over 230 flights a week have been dropped between the two markets representing a serious and almost unprecedented drop in capacity in such a short period of time.
OAG also reported seven low-cost airlines operating between the South Korea and Japan markets have cut capacity by 25% whilst the legacy carriers capacity reductions have been closer to 12%.
Pulse News has reported that according to some industry insiders, load factors on Korea’s major legacy and low-cost carriers operating between South Korea and Japan have decreased along with the cuts in capacity.
Other similar incidents around the world
In October 2019, large scale protests similar to the on-going Hong Kong protests erupted in Barcelona following the Supreme Court ruling that sentenced nine separatist leaders to prison terms for their role in the unilateral push to split from Spain in 2017. Protestors into the Barcelona’s El Prat International Airport from the third day of protests, disrupting airport operations and forcing the airport operator to cancel up to 100 flights daily.
Barcelona Airport Protests (Photo Credit: EPA)
In another part of the world and around the same time, violent protests erupted in Santiago and many other cities in Chile after the government announced a 4% hike in public transportation fares. There had been mass flight cancellations with up to 100 flights daily at Arturo Merino Benítez International Airport alongside reports of protestors blocking access to the airport.
Compared to the previous year, we believe that the on-going political events mentioned in this paper will pose a significant threat to the air transport industry in the Asia and eventually the wider world. There is a possibility that what is happening in 2019 is only the beginning of a major global crisis that will surely affect the air transport industry significantly. It is thus imperative that the air transport industry continues to take whatever action it can to remain resilient and adaptable to these new challenges - the air transport industry will have to continue to strive for innovation and at the same time remain cost-competitive for its survival.
"Healthy Passenger Demand Continues in 2018 with Another Record Load Factor", IATA, 7 Feb 2019
"IATA gauges terrorism impact on airlines", Air Traffic Management, 17 May 2017
"2 Surprising Stocks to Buy and Hold Until 2030", The Motley Fool, 1 Dec 2017
"Airlines ask Hong Kong to waive airport fees as demand drops", Channel News Asia, 23 Sept 2019
"Hong Kong flight bookings drop 10% as protests continue, says Qantas CEO", CNBC News, 22 Aug 2019
"Hong Kong airport feels unrest-related slump, set for 2 million fewer travellers in 2019", South China Morning Post, 24 Sept 2019
"Airport Authority Announces Air Traffic Figures for September", Hong Kong International Airport Press Release, 20 Oct 2019
"Cathay Pacific carried fewer passengers year on year in September, reveals report signalling Hong Kong’s flagship airline could slump to a full-year loss", South China Morning Post, 18 Oct 2019
"Trade Disputes Damages Travel: Japan & South Korea Capacity Suffering", OAG, 4 Sept 2019
"S. Korean airlines see steady fall in Japan-bound passengers in Sept.", Pulse News Korea, 7 Oct 2019
"Japan's Peach Aviation to cut three South Korean routes", The Straits Times, 30 Aug 2019
"Beijing’s ban on solo travellers to Taiwan could cost self-ruled island US$900 million by January", South China Morning Post, 31 July 2019
""US-China trade dispute affects passenger demand: IATA", Flight Global, 12 Aug 2019
"U.S. Cities Are Seeing a Big Drop in Tourism From China", City Lab, 31 May 2019
"Air China to suspend flights on Beijing-Hawaii route", Channel News Asia, 28 March 2016
"45 more flights at Barcelona airport cancelled in wake of Monday protests", Catalan News, 15 Oct 2019
"Over 100 flights cancelled as separatist demonstrators overrun Barcelona Airport", Murcia Today, 15 Oct 2019
"LATAM Airlines cancels hundreds of flights amid unrest in Chile", Flight Global, 22 Oct 2019
We just sent you an email. Please click the link in the email to confirm your subscription!