International capacity still lags in Northeast Asia

The aviation markets in China, Japan and South Korea are still recovering from the effects of Covid-19, with the pandemic having a lasting effect on outbound travel from China in particular.

These were some of the findings from a recent webinar from travel data provider OAG. Titled North East Asia: Growth and Recovery, it focused on how some of the biggest and busiest aviation markets in the world such as China, Japan and South Korea are performing as peak season approaches.

OAG data showed that capacity in Northeast Asia for domestic and international level is now above 2019 levels and for the year to date, capacity is up by 4.9% compared to the same period in 2019, and up by 13% on the same period in 2023. Capacity is expected to continue in line with this trend for the rest of the summer.

Looking at the other major Northeast Asian markets in more detail, and specifically at domestic capacity, only China has made a recovery and moved into growth compared to the 2019 period. OAG said Japan’s domestic capacity is lingering below 2019 levels, with South Korea remaining further behind.

Across Northeast Asian countries, international capacity has still to reach above 2019 levels in any of the main markets. Data showed that China and Hong Kong remain furthest behind, down by 28-29%, whilst Japan and South Korea are just 8% below.

Deirdre Fulton, partner at Midas Aviation, said this was a region that had not fully recovered from the pandemic, with challenging economic conditions in China also playing a part.

The growth of high-speed train services is also having an impact on aviation markets, according to John Grant, chief analyst at OAG.

“High-speed train services are very efficient, and they tick all the environmental boxes compared to the airlines; and yet Chinese airlines domestically are charging the same fares as a high-speed train service,” he said. “That is just madness. An airline has a much higher cost base per flight and has to charge much higher fares. How can we have so much air capacity competing with high-speed train services with the same fare - this will damage Chinese aviation.”

Grant said the outlook would also have a knock-on effect on other industries, such as hotels. “Consider all those in Asia that have become reliant on [travel from] China,” he said. “How do places like Thailand fill all those hotel rooms, waiting for [outbound] Chinese travellers and the pre-2019 volume to return. How do they refocus their market to where there is going to be more demand? Places like Thailand are still holding their breath for Chinese international travellers to return.”

Gary Bowerman, director of travel intelligence and marketing firm Check-in Asia questioned whether destinations like Thailand have had their day with regards to Chinese travellers, suggesting that many Chinese travellers may opt for the Middle East while destinations within Northeast Asia remain popular.

“Thailand is still working very very hard to draw back Chinese travellers but the key phrase used by most destinations in Southeast Asia at the moment is market diversification,” said Bowerman. “They know they were too reliant on China, they need to attract more travellers from different markets and that is what they are trying to do.”

Bowerman shared that Southeast Asia has optimism toward India being the next big market, but Fulton added that India still has very low levels of income despite having the biggest population in the world – which means that air travel remains unaffordable for many.

Participants also discussed Saudi Arabia’s attractiveness to Chinese travellers, with its six- to seven-star hotels seen to be a big draw for the market. However, they also wondered if this might lead to creating too much capacity too quickly and result in an eventual bursting of the bubble.