ANALYSIS: Asia's changing route patterns

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As developments in intra-Asia Pacific services reshape networks in the region, Ascend analyst Adam Zhong discusses the market’s capacity growth – and identifies the carriers driving this shift

The Asia-Pacific intra-region aviation market has long been recognised as one of the fastest growing on a global basis. Recent data shows there are changing capacity patterns in emerging markets within East Asia and from China to Thailand, which are reshaping the Asia-Pacific intra-region network.

Benefiting from a continuing increase in air services liberalisation within the Asia-Pacific region and strong air travel demand, the intra-Asia Pacific route network maintained fast growth in the second quarter of 2013.

Innovata schedules show that there were around 432,000 nonstop passenger flights – on 1,199 routes – operating in the intra-Asia Pacific region market in the second quarter of 2013. This represents a net increase of 107 routes and 9.2% more flight operations compared with a year ago. Airlines were offering over 89 million seats within the region, a net increase of 8.2% capacity year-on-year.

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Routes connecting East Asian and Northeast Asian countries constitute the largest regional air market in the Asia-Pacific region. China-Hong Kong and China-South Korea routes recorded double digit year-on-year growth in available seats during the second quarter of 2013. The latter overtook Japan-South Korea as the second-largest market.

The Hong Kong market will grow even more if low-cost carrier Jetstar Hong Kong is approved.

A dramatic increase in seat capacity was also observed on routes between China and Thailand, where year-on-year growth was at 60%. Thai AirAsia played a key role in leading growth and projects that it will carry 5 million Chinese passengers to Thailand over the next five years.

Thai AirAsia operates 30 Airbus A320s and is serving seven destinations in China, including Hong Kong, Macau, Guangzhou, Shenzhen, Chongqing, Wuhan and Xian from its Bangkok hub and from Chiang Mai and Phuket.

Country pairs with fast growing seat capacity include Indonesia-Malaysia (14%), Malaysia-Singapore (13%) and Singapore-Thailand (12.5%). These now have a strong low-cost presence.

In contrast, China-Japan seat capacity was down sharply by 21% in the second quarter of 2013 compared with a year ago. It has also fallen from the fourth to the sixth-largest market. The decline was mainly due to shrinking business and tourism traffic demand – under pressure from difficult bilateral relations between the two nations.

Almost all carriers in this market recorded a fall in seat capacity. Among them, China Southern Airlines’ seat capacity dropped by 54% year on year, while Air China’s seat capacity fell by 26% and China Eastern Airlines by 25%.

Australia, located in the south of the region, is one of the largest and most mature markets. Qantas’s share of international travel to and from Australia is now below 20% and continues to fall as Middle Eastern and Chinese airlines maintain their plans for capacity growth.

Qantas’s new Emirates alliance is designed to provide a better network from Europe via Dubai, while allowing the Australian carrier to focus more on intra-Asia routes. The introduction of more efficient aircraft like the 787 will also enable the opening of new routes.

Moreover, Qantas is facing strong competition at home. Under the leadership of John Borghetti, who was previously number two at Qantas, Virgin Australia has transformed from a low-cost carrier into a multibrand airline group. Virgin Australia is now a full-service domestic airline with a 40% share of passengers in the market. It has built up international codeshare and frequent flyer alliances to win more long-haul traffic.

Virgin Australia has also acquired 60% of Tigerair Australia and again competes in the low-cost market with Jetstar, a Qantas subsidiary. Skywest Airlines, now known as Virgin Australia Regional Airlines, was recently acquired for its high yielding mining “fly-in fly-out” (FIFO) market operations in Western Australia and Queensland.

While the recent slowdown in emerging Asian economies and increasing geopolitical instability may affect some of the growth potential in Asia-Pacific, the imbalance in growth will continue. An interesting question is how Asia-Pacific airlines will continue to invest in service innovation to keep in line with market dynamics?