There has been an improvement in the outlook for the aviation sector all over Southeast Asia. Economic growth, a growing middle-class population and increasing income and expenditure translate into better traffic growth.
At the Singapore Air Show held in February 2020, Boeing had predicted that Southeast Asian airlines would need 4,500 airplanes over the next 20 years, with Vietnam topping the traffic growth charts. Even now, although passenger traffic might take a few years to recover, Boeing is confident of high demand in Southeast Asia in the long term.
Southeast Asia Infrastructure takes a look at the developments in the aviation sector…
Southeast Asian countries have been investing extensively in the development of their airport infrastructure. The region’s leading aviation market, Vietnam, is expected to invest funds to the tune of $472 million in building Ho Chi Minh City’s Tan Son Nhat airport’s third terminal. Construction work on the project is expected to begin in October 2021 and be completed in mid-2023. Apart from Vietnam, Thailand’s Ministry of Transport has also undertaken the development of U-Tapao and Eastern Airport City. It comprises six projects: a third airport terminal; a commercial gateway; air cargo, and maintenance, repair and overhaul sections; a free trade zone; and a training centre for aeronautical personnel. A second terminal, which increased airport capacity from 800,000 to 3 million passengers per annum (mppa), was officially opened in February 2019; in the second phase, the government will boost capacity further to 15 mppa. The airport development project worth 290 billion baht ($9 billion) is part of the Eastern Economic Corridor, a THB 1.7 trillion plan to build infrastructure and develop advanced industries along the eastern seaboard. The BTS Group and Sino-Thai will handle the construction works and Bangkok Airways will bring its aviation expertise.
Similarly, construction of a new terminal at Jakarta’s busy Soekarno-Hatta International Airport will begin in 2021, as confirmed by Angkasa Pura II, the state-owned airport operator. Terminal 4 will be built with a planned capacity of around 40 mppa and will become the largest terminal in Indonesia. For Komodo airport expansion, a consortium of investors including the operator of Singapore’s Changi airport has confirmed an investment of Rp 1.2 trillion ($86 million) to expand the airport’s runway, aprons and international terminals and another investment of Rp 5.7 trillion to operate the airport for the next 25 years. Construction works on Surbung airport are also underway and are expected to be completed soon. The airport is being constructed in Falam township and aims to bring more tourists to the region as well as promote the development of transportation in the far-flung mountainous Chin state.
In Cambodia, the first section of the new international airport is expected to be completed by 2023. The new Phnom Penh International Airport, is expected to offer employment to several thousand citizens. It is the second airport under construction after the Siem Reap International Airport. It will be able to accommodate Airbus A380-800s and Boeing 747-800s. The total investment of $1.5 billion will come from loans from foreign banks, $280 million from the Overseas Cambodia Investment Corporation and $120 million in registration capital.
Recently, in November 2020, the Metallurgical Corporation of China (MCC) won a $405 million contract to design and construct the airfield for a new airport in Phnom Penh, Cambodia. The airport is expected to cost $1.5 billion, most of which is being funded by China.
In another recent development, Airports of Thailand (AOT) has approved the northern, western and eastern expansion of Suvarnabhumi airport at a cost of THB60 billion to support the post-Covid-19 recovery in air travel demand. The terminals, known as East Expansion, West Expansion and North Expansion, are expected to increase the airport’s annual passenger handling capacity by another 60 million. Vietnam Airlines has also submitted a proposal to the Ministries of Transport and Planning and Investment, and the Commission for the Management of State Capital at Enterprises to invest around VND 10 trillion ($433 million) in infrastructure development at the Long Thanh International Airport, 40 km northeast of Ho Chi Minh City. Vietnam Airlines plans to raise 70 per cent of the proposed investment through loans, and 30 per cent through equity.
The Southeast Asian economies have also signed a number of agreements over the past one year to boost the aviation sector. On September 1, 2020, Singapore and Brunei Darussalam established a reciprocal green lane for essential travel between the two countries. Besides, Japan Airlines announced new codeshare partnerships with Royal Brunei airlines that will allow Japanese airlines to offer flights between Bandar Seri Begawan and Tokyo Narita airport operated by the Bruneian flag carrier. In September 2020, a new route was launched from Phnom Penh to Zhengzhou, the southern bank of the Yellow river and the birthplace of the Yellow emperor of the China People’s Republic (CPR) by the national flag carrier, Cambodia Angkor Air.
With regard to raising funds, SIA secured S$8.8 billion in liquidity and raised S$900 million through long-term loans secured on some of SIA’s Airbus A350-900 and Boeing 787-10 aircraft. Besides, it arranged new committed lines of credit and a short-term unsecured loan with several banks, which will provide further fresh liquidity amounting to more than S$500 million. All existing committed lines of credit that were due to mature during the course of 2020 have been renewed until 2021 or later, thus ensuring continued access to more than S$1.7 billion in liquidity.
There is also adequate focus on capacity addition in flight operations. Construction of a seven-storey car park at the Penang International Airport, Malaysia, which began in 2019, was completed in early 2020, adding 582 parking bays to PEN, bringing the total bays to 1,800.
Southeast Asian countries are also leveraging technologies to develop smart digital solutions to ensure advancements and efficient operations. The increased emphasis on technological deployment and advancements is primarily to reduce costs and improve efficiency.
At Singapore’s Changi airport, automated kiosks and new proximity sensors are being installed and autonomous cleaning robots in the terminals have been upgraded with a nozzle that sprays a light disinfecting mist for added protection. The Changi Airport Group is also testing the use of ultraviolet-C (UV-C) LEDs to disinfect surfaces, besides conducting trials on the use of contactless infrared technology for passenger lifts.
Artificial intelligence (AI) is also being adopted to enhance customer experience and optimise airport operations. AI-based solutions will help pilots find parking slots for their aircraft easily. In addition, the increasing adoption of machine learning and natural language processing technologies for virtual assistance and training applications in the aviation sector is driving the growth of the market in the Asia-Pacific region. Similarly, virtual modelling and simulation will allow airports to better allocate resources to respond to peak times. It will allow airports to foresee the impact of flight delays and make optimal use of the runway. Big data and analytics will also help airports to optimise passenger flows, allowing them to process larger numbers, apart from providing information for effective decision-making.
The implementation of electronic airway bill (E-AWB) has seen significant improvements in the logistics industry, enhancing efficiency as removing the need for paper documentation has proven instrumental in streamlining the process of handling air cargo shipments. In addition to this, E-AWB enables information to be provided electronically to the airline before delivery. Some carriers have introduced GPS solutions that enable shippers to track the location and condition of high-value, time-critical, or other significant shipments.
In-flight entertainment (IFE) and connectivity include services such as video streaming, text messaging, and internet browsing that airlines offer to air passengers on-board. These are device-agnostic – they can support any portable device such as tablets, smartphones, and laptops – and will enable air passengers to download IFE content on their personal electronic device, which eliminates the need for the use of seat-back video.
The International Air Transport Association (IATA) is promoting a One ID concept to replace the present repetitive process of showing boarding passes and passports to different parties for different purposes. With One ID, the use of a trusted digital identity, biometric recognition and a shared collaborative identity management platform will simplify the process. This can reduce queue and wait times, and prevent the use of false identification papers for human trafficking and evading the law.
Besides, the use of drones is also being promoted for cargo delivery. In 2019 alone, the civil unmanned aerial vehicle market had a global volume of about $5.5 billion. The market for production and services applications is projected to grow at around 11 per cent per annum over the next five to six years, largely driven by the infrastructure sector. Drones automate the transportation of goods while offering faster, more flexible, less expensive and more environmentally friendly service than other alternatives.
Self-service is another advancement that is being promoted at airports. Passengers can collect their boarding passes and print bag tags and drop their check-in baggage at automated kiosks. Border control is automated – passengers scan their passports, boarding passes and fingerprints at automated immigration gates. To board the plane, passengers scan their boarding passes at automated boarding gates. At all these gates, passengers’ photos are taken for identity verification.
More and more airport-to-passenger communication now happens through passengers’ personal devices. In this respect, AOT plans to launch a mobile application to connect 16 international airports across the world. The THB 400 million project will provide an integrated digital platform for six AOT airports and 16 sister airports worldwide.
Before the Covid-19 pandemic, Southeast Asia was one of the fastest growing markets for air transport. But despite being buoyed by high demand, a deregulated airline market squeezed the profit margins of most Southeast Asian airlines. For instance, Vietnam Airlines registered a $284 million loss, Singapore Airlines a loss of approximately $538 million in the first half of 2020 and Garuda Indonesia a loss of $696 million.
To accelerate air travel, many airlines are offering discounts on ticket prices; thus, revenue tends to fall more in the short term but eventually it will start to increase some time later. The first half of 2020 was very challenging but now with restrictions being eased, domestic travel has begun to show a positive trend.
While there has been a pick-up in domestic travel, international travel is likely to take longer to get back to the pre-Covid-19 level. Recently, the concept of a “travel bubble”, which is an “intra-zone movement or moving corridor”, has become attractive. An “air travel bubble” or “air travel arrangements” are temporary arrangements between two or more countries aimed at restarting commercial passenger airplane services when regular international flights are suspended due to the outbreak of the Covid-19 pandemic.
The prolonged shutdown of manufacturing activities in several countries and the subsequent impact of the outbreak on global economic activity resulted in low crude oil prices and thus aviation turbine fuel (ATF) prices were low; this came as a silver lining as a decline of $1 in ATF prices translates into a 0.5-0.7 per cent increase in the profit margins of carriers.
Overall, the Southeast Asia region has great potential. However, the recovery of the aviation industry depends on financial support, including tax incentives, from the government and from financial institutions and investors.