APAC Airline Traffic to Stay Below Pre-Pandemic Levels in 2021

Fitch Ratings-Singapore/Sydney-28 September 2020: Passenger traffic at airlines in several key Asia-Pacific (APAC) markets is likely to remain well below 2019 levels in 2021, despite a recovery, Fitch Ratings says. The pace of the recovery will hinge on each market’s relative success in bringing the coronavirus pandemic under control, helping to improve passenger confidence and reduce the risk of further travel restrictions, as well as its share of international traffic, which we expect to stay weaker than domestic volume.

Our forecasts are based on the assumption that a vaccine or treatment will not become available at scale in 2021, but that progress is made in controlling the pandemic. Airline passenger volume could improve faster than we forecast if an effective vaccine is distributed sooner than we believe or if there is more success in containing the pandemic. However, we foresee flat demand in 2021 that is well below the 2019 base should there be limited progress on this measure.

China has witnessed a rapid recovery in air passenger traffic. Mainland China may see rising monthly domestic revenue passenger kilometres (RPK) – a measure of traffic – by October 2020, thanks to its success in containing the pandemic. Average RPKs for 2021 may recover to at least the 2019 level if China evades another wave of the pandemic. Yoy declines in monthly RPKs have been narrowing over the last few months, but we think total RPKs for 2020 may still fall by around 40%, with domestic RPKs being around 30% lower. China’s six major listed airlines, which have joint market share of about 75% by RPK, saw a 19% yoy decline in aggregate mainland China RPK in August 2020. The yoy decline has shrunk each month since March 2020, when passenger traffic was down by 69%. The six airlines’ RPK growth can be seen as a proxy for the overall sector.

We expect average RPKs for Indian airlines to decline by around 65% in 2020 and remain 40% below the 2019 level in 2021. The plunge in 2020 RPKs includes strong performance in 1Q20, which was largely unaffected by pandemic-related restrictions, and an extremely weak 2Q20, when domestic flights were prohibited for two months from 25 March. Domestic air passenger traffic has remained weak since fights resumed, with August data showing a 76% yoy drop in passenger numbers. We expect a lagged recovery in 2021, assuming quarantine fatigue and increased comfort with airlines’ efforts to mitigate risks, with higher passenger traffic despite a vaccine or treatment not being available at scale.

Passenger traffic at Vietnamese airlines should rebound faster than in other southeast Asian markets due to the country’s low incidence of COVID-19 cases. We forecast average RPKs of around 55% of the baseline level in 2020 and 90% in 2021. Singapore Airlines, on the other hand, could witness the sharpest 2020 RPK fall, at 70%, due to its complete dependence on international routes, with 2021’s RPKs staying at around 50% below 2019 levels. We expect Indonesia and the Philippines, where further COVID-19 spread remains a high risk, to see average RPK levels at 35% of the baseline in 2020 and 60% in 2021. Airlines in Thailand and Malaysia are also likely to report similar levels, as they would be affected by weak international traffic volume despite the countries’ success in controlling the pandemic.

We expect Australia’s 2020 RPKs to be at around 30% of 2019 levels and believe a meaningful recovery will be delayed to the middle of 2021, as governments of the three most populous states – comprising the Golden Triangle route between Sydney, Melbourne and Brisbane – indicate that borders may only reopen toward the end of this year. We expect capacity to return to pre-pandemic levels towards end-2021 or early 2022, with total 2021 RPKs increasing to around 60% of pre-pandemic levels and to around 85% in 2022. Domestic tourism will be Australia’s main demand driver, while we believe business will recover at a more gradual pace. Airline surveys indicate that Australians are keen to resume travelling when it is safe to do so, with good demand for flights when services have resumed without restrictions.