The fourth edition of the Airport Industry Outlook, developed in partnership with Mott MacDonald, provides an analysis of airfare trends during the COVID-19 pandemic and in the recovery phase, and summarises the 2022 year-end performance of the airport industry in terms of traffic recovery and economics.
All but one of the Top 15 busiest air routes in the world is in Asia-Pacific and the Middle East
To understand the market dynamics of air fares in more detail, the world’s Top 15 busiest international routes in 2019 were analysed in detail.
Across these busiest routes in 2022 the number of passengers was down 66% and the average airfare was up 77%. Conversely, LHR-JFK passengers had already recovered to 89% of 2019 levels in Jul-2019 and the airfare increase was a more modest increase of 21%.
The Outlook majors on airfares as if to highlight the dichotomy – the same one pointed out by Heathrow Airport earlier and reported by CAPA in London Heathrow Airport – traffic, financials, regulation, charging, and Britain's standing – between the ease by which airlines can usually raise prices and the difficulty that airports have in raising their charges to those airlines where there is regulation in place.
From the air transport ecosystem perspective, elevated airfares represent an obvious downside factor for full recovery as these may suppress demand and therefore reduce the number of passengers.
Airfare increases were mainly driven by variations in airline variable operating costs (e.g. fuel price, wage inflation); reduced seat capacity relative to demand; less airline competition on some routes; efforts to recover losses incurred during the COVID-19 pandemic, and increased debt and interest rates.
Fuel prices influenced by Ukraine War sanctions
The fuel price is, and always has been, a major driver of airline costs and air fares.
Fuel accounts for approximately 25% of airline expenditure on average, and this proportion is larger for long haul airlines (although other cost determinants decline with flight length).
In recent years fuel costs have been unusually variable: jet fuel was 41% cheaper in 2020 compared to the 2019 average price (just when it needed to be), but 79% higher in 2022 due to oil supply restrictions caused by Russian sanctions and increasing air travel demand.
APME fares above the global average...
ACI AP said airfares in Asia Pacific and the Middle East were above the global average in 2022, as nations emerged from pandemic-related restrictions. Airfares had increased 53% in nominal terms and 35% in real terms compared to 2019. The largest increases in percentage and absolute terms were in areas that applied stringent and long lasting COVID-19 related travel restrictions, including the Emerging East Asia (mainly China) – there, yields increased 90% in 2022 over 2019 levels, to USD 0.21 per RPK.
This region was followed by Developed East Asia, with yields up 67%.
All other regions, including Oceania (+49%), South East Asia (+35%), Middle East (+30%) South Asia (+19%) reported fare increases compared with 2019, despite those being generally lower than in 2021 as travel restrictions were progressively lifted.
...and especially on routes where travel restrictions and scarce frequencies remained
Airfares trended down towards the end of 2022 as traffic recovered, as indeed they did in most regions.
Regional airports still losing money, with negative margins for the tenth consecutive quarter
All this is in sharp contrast to the financial health of airports, which are still losing money, with regional EBITDA and Net Profit margins being negative for the tenth consecutive quarter since 2020.
ACI AP has stated that they "need to get back to pre-pandemic traffic volumes in order to restore their economic equilibrium after a prolonged period of operating in the red".
But some improvement noted from 3Q2022
On the other hand, Asia Pacific and Middle East airport EBITDA margin and net profit margins improved "significantly" in 3Q2022 compared to 2Q2022, due to higher revenues and "well contained" cost increases in response to the growth in passenger demand.
The majority of airports achieved better revenue performance compared to 3Q2021 and 2Q2022, and on average 65% better than 2Q2022. The gradual improvement in revenues was supported by the opening up of major cities in China.
ACI Asia-Pacific Director General Stefano Baronci stated: "Despite substantial efforts by airports to freeze or lower airport charges in 2022, the average 53% increase in airfares throughout 2022, compared to 2019, reveals a fundamental imbalance in the financial stability of the industry as well as posing a threat to the sector's full recovery in 2023. Fuel prices, wage inflation, insufficient seat capacity relative to demand and a lack of airline competition on specific routes, are the major determinants in the increase in airfares".
Chinese airports still losing money hand over fist
CAPA does not yet have access to many full-year 2022 financial statements from airports and airport groups in Asia Pacific; and none at all from the Middle East, where such statements are rarely made public.
BCIA reports both operating and net losses that were worse than in 2021: an operating loss of CNY3658 million, compared to a loss of CNY2680 million in the p-c-p (previous comparable period); a net loss of CNY3527 million, compared to a loss of CNY2117 million in the p-c-p.
Revenues at Beijing reduced by 33.3%, with the aeronautical losses outstripping those of non-aeronautical (-47% versus -31%).
SAC also reports growing losses at both operating and net levels – an operating loss of CNY1416 million, compared to a loss of CNY11.3 million in the p-c-p; a net loss of CNY1128 million, compared to a loss of CNY20.1 million the in p-c-p.
At SAC revenues reduced by 19%, whereas costs increased by 22.5%. This was a double whammy that Beijing was able to avoid to the same degree by keeping its costs increase under greater control.
China slowly opening up again
In both cases those results will have been more directly influenced by the progress of the pandemic than by airfares or other factors.
It was only in Nov-2022 that the country began to ‘open up’ again and progress in that direction has been measured, with the anticipated rush to buy airline seats, either out or in, not having materialised in what remained of 2022.
Vietnam’s Airports Corporation records an extraordinary result...
In Vietnam, where the pandemic impact was severe but not nearly as much as in China during the latter part of 2022, Airports Corporation of Vietnam (ACV) reported revenue of more than VND13,800 billion in 2022. This was nearly three times higher than 2021, passenger numbers increasing by 99% and aircraft movements by 125%; profit before tax was more than VND8800 billion – a tenfold increase.
Costs increased by only 25%.
That is an extraordinary situation, and flies in the face of the general comments about the region by ACI AP.
...while the main airlines struggle
And even more so when account is taken of the losses made by the two main airlines, Vietnam Airlines and VietJet Air, which between them have four times the seat capacity of all the other airlines operating out of, or into, Vietnam put together.
Vietnam Airlines made a net loss of VND10 trillion. The airline will have a cumulative loss of VND34 trillion and will face the risk of delisting.
VietJet Air’s gross losses were VND2166 billion, even though revenues – VND39.3 trillion (USD1.68 billion – were up threefold year-on-year.
ACV’s projections for 2023 are for:
- Revenue: VND18,414 billion;
- EBIT: VND8,448 billion;
- Passengers: 116 million;
- Cargo: 1.6 million tons;
- Aircraft movement: 768,000.
Some improvement in Thailand, and one that gained more momentum towards the end of 2022
The picture is not quite so positive in Thailand, but an improvement has been achieved there.
Airports of Thailand’s (AoT) full-year reporting period is for the 12 months ended 30-Sep-2022.
In that period total revenue increased to THB16,560 million, which was +133.7% year-on-year.
Aeronautical revenue was THB7290 million, +213.1%. The increase in departure passenger service charges was 361.7%.
AoT did not manage to achieve an operating or net profit but was able to reduce the operating loss to THB10,934 million, compared to a loss of THB17572 million in the p-c-p.
The net loss was THB10,976 million, compared to a loss of THB16,372 million in the p-c-p.
Had the reporting period been until the end of the calendar year, that improvement might have been more notable still because revenues increased by 207% in the three months ended 31-Dec-2022, while the operating loss was reduced by two thirds and the net loss was one tenth of what it was in the previous year (2021).
MAHB turns an operating profit
- Revenue: MYR2124 million, +89.4%;
- Aeronautical: MYR1113 million, +110.2%;
- Non aeronautical: MYR823.4 million, +85.1%;
- Retail: MYR154.1 million, +555.4%;
- Operating profit: MYR302.0 million, compared to a loss of MYR329.0 million in the p-c-p;
- Net profit (loss): (MYR171.9 million) (USD39.6 million), compared to a loss of MYR629.7 million in the p-c-p.
That is an equally positive turnaround as at AoT – if not more so.
The outlook is possibly better than ACI AP anticipates from these sample statistics, but much still depends on China
These statistics in themselves prove nothing except that there are widespread variations across the entire region, with some countries faring much better than others.
In this brief sample three countries demonstrate distinct improvements in their financial environment during all or a large part of 2022, with two of them reducing losses considerably (an making an operating profit in the case of MAHB), while in Vietnam it is almost as if there had never been COVID-19.
China is clearly the country holding all the others back.
With foreign visitors now free to enter China and move around without the need for COVID-19 vaccination certificates, and the virus seemingly in decline, and no sign of the feared new variants, and seat capacity heading back towards 2019 levels – all that should have an impact on the prospects for many countries in the region.