Aviation recharts its course

Aviation recharts its course

Lower Chinese traffic and a continued red card for safety will slow the industry's growth

Flying into less-bright skies: more moderate growth in flyers in 2017.
Flying into less-bright skies: more moderate growth in flyers in 2017.

Thailand's aviation industry may lose some altitude in 2017 but will still soar fairly high above turbulence.

The explosive growth in passenger traffic through Thailand in the first seven months of 2016 has given way to clearer signs of weakening in the new year.

Lacklustre consumer spending and the sluggish Thai economy are major contributors set to tame the country's overheating air travel business.

A moderate growth in foreign visitors to Thailand, with a notable slowdown in Chinese tourist inflow, a fallout of the clampdown of the "zero-dollar" Chinese tour scams, will ensue.

The International Civil Aviation Organization's red-flagging of Thailand's aviation safety standards is most likely to remain in place until the end of 2017.

That lingering impediment, imposed mid-2015, will continue to restrict Thai-registered airlines' opportunities for growth, forbidding them from introducing new routes, raising the frequency of existing flights to foreign countries, or change aircraft types already deployed for current services.

Meanwhile, bottlenecks at Thailand's major airports, including destinations like Suvarnabhumi, Don Mueng, Phuket and Chiang Mai, which are all operating beyond their capacities, have continued to restrain airlines' traffic growth.

MODERATE GROWTH

Air transportation demand through Thailand will remain strong, moving upwards, but at a slower pace in 2017.

The outlook, according to the Airports of Thailand Plc (AoT), is for passenger traffic passing through the six major airports it supervises to grow by 8-9% in 2017.

That contrasts with the jump of 21.3% in 2015 and 11% recorded in Jan-Nov 2016 when the cumulative tally of passenger boarding, alighting and transiting reached 110.4 million.

Foreign visitors to Thailand in 2017 are expected to grow to 35 million, up from 32.5 million estimated in 2016, according to the latest projection by Tourism Authority of Thailand (TAT).

Arrivals from China, which is Thailand's top source market, will grow to around 9.8 million in 2017, up from 8.8-8.9 million in the latest downward revision for the whole of 2016, TAT says.

The Thai government's crackdown on illicit tours depressed Chinese arrivals, missing the target of 11-13 million set earlier in 2016, which had represented a sharp increase from 7.9 million recorded in 2015.

The anticipated slowdown in the world's second-largest economy to 6.5% growth in 2017 from around 6.7% for 2016 will also decelerate the mass departures of Chinese tourists to the world as well as to Thailand, their favourite foreign destination.

While the World Bank forecasts 2017's global growth at 2.8%, a tad ahead of 2016's growth, which is expected to be at 2.4%, economists and aviation executives do not entirely anticipate the uptick to translate into sustaining high-growth in Thailand's passenger traffic.

The same applies to the Bank of Thailand's 2017 forecast of 3.2% growth, similar to the rate seen in 2016, which is not expected to spur air travel demand among Thais either.

So far, no additional international airlines have sought permits to operate new flights through key AoT-operated airports in 2017, signalling a cool-down in traffic demand.

The likely scenario is for most airlines operating through Thailand, now numbering around 120, will maintain their status quo, with some making capacity cutbacks to match demand, according to aviation analysts.

The projected slowdown in international traffic is clearly visible at Suvarnabhumi airport, which serves as the gateway to Thailand and handles around half of total air traffic throughout Thailand.

AoT foresees Suvarnabhumi handling 6.7% more passengers in 2017, 59.5 million, up from 55.8 million in 2016, which represented a 5.5% year-on-year increase from 2015.

The Airline Operators Committee (AOC), an industry body which represents some 86 international airlines and 26 aviation service providers operating in Thailand, is generally in consensus, but with a broader range of growth forecast of 5-8%.

Traffic from the Middle East, China, and India will continue to propel Thailand's international traffic volumes, AOC chairman Louis Moser told the Bangkok Post.

MILDER COMPETITION

Market contest, particularly among low-cost carriers (LCC) in Thailand, in 2017 should not be as intense as in the past years and pricing mechanisms will become more stable, envisages Tassapon Bijleveld, chief executive of Thai AirAsia (TAA), the country's largest no-frills operator.

"We foresee new marketing campaigns that are more specific to each demographic and expect them to achieve notable growth," he says.

LCCs will continue to have deeper penetration in the overall Thai aviation market and offer a wider range of destinations, says Mr Tassapon.

LCCs had a 43.9% share of the overall passenger count through AoT-run airports in the first-half 2016.

TOUGHER GLOBAL CONDITIONS

The global airline industry will face more difficult conditions in 2017 due to macroeconomic conditions and oil prices. This backdrop will have implications on the state of Thailand's aviation industry as well.

The International Air Transport Association (IATA) says the world's airline industry reached its cyclical peak in 2016 in terms of profitability.

The industry is expected to finish 2016 with a net profit of US$35.6 billion, a soft landing in profitable territory is expected in 2017 with a net profit of $29.8 billion.

The year 2017 is expected to be the eighth year in a row of aggregate airline profitability, illustrating resilience to shocks that have been built into the industry structure. On average, airlines will retain $7.54 for every passenger carried.

IATA director-general Alexandre de Juniac notes the expected higher oil prices will have the biggest impact on the outlook for 2017. In 2016 oil prices averaged $44.6/barrel (Brent crude) and this is forecast to increase to $55 in 2017. This will push jet fuel prices from $52.1/barrel in 2016 to $64.9/barrel in 2017.

Fuel is expected to account for 18.7% of the industry's cost structure in 2017, which is significantly below the recent peak of 33.2% in 2012-2013.

The demand stimulus from lower oil prices will taper off in 2017, slowing traffic growth to 5.1%, from 5.9% in 2016.

Industry capacity expansion is also expected to slow to 5.6%, down from 6.2% in 2016. Capacity growth will still outstrip increases in demand, thus lowering the global passenger load factor to 79.8%, from 80.2% in 2016.

There is some optimism over the prospects for the cargo business in 2017. The break in falling yields and a moderate uptick in demand (3.5%) will see cargo industry volumes reach a record high of 55.7 million tonnes, up from 53.9 million tonnes in 2016.

Industry revenues are expected to rise slightly to $49.4 billion, but that is still well below the $60 billion level of annual revenues experienced in 2010-2014. Trading conditions remain challenging.

Connectivity continues to set new records and IATA expects nearly 4 billion travellers (up from 3.77 billion in 2016) and 55.7 million tonnes of cargo (up from 53.9 million in the new year). Almost 1% of global GDP is spent on air transport -- some $769 billion, Mr de Juniac says.

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