April 17, 2024

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Airlines are returning to places you might not expect

Airlines are returning to places you might not expect

  • Written by Suranjana Tiwari
  • BBC News, Singapore

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The Tata Group acquired Air India in 2022, investing in new aircraft, rebranding and converting legacy systems.

When the Indian conglomerate Tata bought the country's national airline, it was hailed as a miracle.

Air India has been mired in debt and the state administration has been underfunded for decades. No one wanted even a piece of the popular but loss-making carrier.

But an agreement was reached in 2021, as the world was emerging from the pandemic, and airlines were betting big on retaliatory travel once borders reopened.

They were right. The recovery is well and truly underway, and air travel is off to a strong start in 2024. There have been warnings of slowing growth in the US, where spending is expected to plateau after a post-pandemic surge. But the story is different on the other side of the world in Asia.

“If we look at the scale of opportunities in India, it is already the most populous country in the world,” Air India CEO Campbell Wilson told the BBC at a recent aviation event in Singapore. “It has a geographic advantage… that connects regions of the world together. It's a very underserved market.”

By 2042, India's domestic aviation market is expected to be five times the size of 2019, with Indians taking about 685 million flights every year, according to aircraft manufacturers. Airbus. This would make the South Asian country one of the fastest growing civil aviation markets in the world, third after China and the United States.

It's not just India. By mid-century, Indonesia, which now ranks 13th globally in terms of passenger numbers, is expected to jump to fourth place, analysts say. Air travel in the Philippines, Thailand and Vietnam is also expected to boom in the coming decades.

They are all emerging economies with increasing numbers of young people who can afford travel. It is clear that global air traffic jumped by 16% over the past year. But in Asia, the increase was almost double that, according to industry figures.

Governments in these places are also investing in infrastructure to improve connectivity, which is essential in vast archipelagos like Indonesia and the Philippines.

China, of course, is an obvious market – despite its currently sluggish economy, its travelers have emerged from coronavirus-free bases to return for holidays. Beijing now offers visa-free travel to citizens of some countries, and some countries, such as Thailand and Singapore, are reciprocating.

“We are delighted that people are starting to travel outside of China,” says Glenn Vogel, CEO of online travel agency Booking.com. “It is probably one of the last countries to make a strong return to travel.”

But airlines are looking for alternative markets due to the slowdown in China's economy, uncertainty about doing business there, and declining consumer spending.

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The Philippines is one of the fastest growing markets for air travel

“Asia is a very exciting place to be – and the Philippines is one of the most exciting places to be. There is a great opportunity there,” says Michael Szocs, CEO of low-cost airline Cebu Pacific.

The airline has struggled during the pandemic without government support. As with many competitors around the world, it also faces groundings due to faulty Pratt & Whitney engines.

But it has witnessed a revival in the past two years, expanding and capturing more than half of its domestic market. The new Philippine government is also helping, as it is working to privatize the international airport in Manila and plans to add runways throughout the archipelago to handle more and larger planes.

Szocs has high hopes for the country of about 115 million people, where per capita spending is rising: “We have an increasing educated population that is relatively young, and they are growing, with an increasing propensity to travel.”

India, on the other hand, is a harder market to conquer. Air India faces a strong domestic competitor in IndiGo, and a tough challenge in matching Emirates and Qatar Airways, which regularly rank among the world's top airlines.

But Tata's successful salt-to-software conglomerate has begun to transform the struggling transport company. The company has already spent millions of dollars investing in new aircraft, new brands, and restructuring outdated and inefficient systems.

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Southeast Asia has returned as a regional hub rather than a global hub

It now wants to merge its five airlines – three subsidiaries of Air India, and two joint ventures, AirAsia India and Vistara (with Singapore Airlines). The goal: A highly regarded airline for international travelers, and a reliable, low-cost option for domestic travelers.

Wilson hopes to restore the glory of Air India – India's first airline, started by the Tatas in the 1930s, renamed Air India and nationalized in the 1950s. He believes winning the international market is key but will need to “connect more cities around the world non-stop with India” – and this will include starting more routes and, of course, buying more aircraft.

The company has already gone on a buying spree. It has ordered more than 200 Boeing Max 8 and Max 10 aircraft in one of the largest aviation deals in aviation history. But the Max family has been under scrutiny since a door seal on a 737 Max 9 exploded mid-flight in the United States, raising concerns about the already delayed Max 10 model. This was after two fatal crashes in 2018 and 2019 caused by a glitch in the flight control software. Boeing's crisis over its safety record also led to the resignation of its CEO, Dave Calhoun.

“When we have concerns, we raise them at the highest levels, including with Boeing,” Campbell said.

Wilson believes that the future of Air India lies in transforming India into a global transit hub, like Dubai or Singapore.

This may be a challenge since some long-distance routes, especially to Europe, have not yet been restarted following the pandemic. At the same time, travelers in these countries are choosing to travel by air within East and Southeast Asia, leading to increased air traffic in the region.

But it could also be an opportunity for Air India, and for Delhi given that some Southeast Asian capitals lag behind other international aviation hubs such as Singapore, Hong Kong and Dubai.

However, the industry is optimistic that the pandemic is over, people are starting to fly again, and economies have rebounded.

“The truth is that people love to travel,” Mr. Vogel said. “As long as economies are growing, we know travel is going to grow a little faster. Our job is to try to get a bigger piece of that growing pie.”

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