Post-COVID Recovery of the Local Aviation Market
The local airline industry in Singapore has experienced a robust post-pandemic recovery, driven primarily by a surge in travel demand as Singapore swiftly reopened its borders, but also by the ability of Singapore Airlines to rapidly ramp up its network.
Singapore Airlines and Scoot Surge Ahead with Near and Above Pre-Pandemic Capacities, Achieving Record Load Factors in FY2023-24
Both Singapore Airlines and Scoot have successfully returned to their pre-pandemic capacity levels. By the end of 2023, Singapore Airlines had reached 93% of its pre-pandemic capacity in terms of available seat kilometers (ASKs), while Scoot had reached 104%. In contrast, Jetstar Asia has experienced a slower recovery, only restoring less than half of its pre-pandemic capacity in 2023.
The capacity to ramp up their operations at a much faster rate than their competitors enabled these airlines to capitalize on the pent-up demand for travel, paving the way for high load factors and strong financial performance. Singapore Airlines and Scoot achieved record passenger load factors of 87.1% and 91.2% respectively in the most recent financial year, ended 31 March 2024.
The size of Singapore Airlines’ fleet and network have been key drivers of the local airline industry’s strong performance, following the immediate post-pandemic era. Nonetheless, there were still certain geopolitical factors within key markets which slowed the industry’s recovery, such as the delayed reopening of China. If these issues had not arisen, the recovery back to 2019 levels would have been much faster.
Airlines Grapple with Rising Costs and Intensified Competition as Post-Pandemic Travel Normalizes
It is important to recognize that the post-pandemic travel boom is exhibiting signs of normalizing. As airlines resume operations and expand their capacity back towards, and beyond, pre-pandemic levels, competition in the Singapore market has intensified. Increased industry capacity can lead to constraints on ticket prices as airlines compete for passengers. Globally, IATA expects 2024 yields to decline slightly from 60.6 US cents per ATK to 60.3 US cents.
High operating costs, driven by rising fuel prices, labor costs, and maintenance expenses, are further squeezing profit margins. As a result, despite the initial surge in demand for air travel post-pandemic, without adaptation, the combination of increased competition and escalating costs may cause a decline in profitability from the recent record levels experienced by many airlines.
Local airlines must now determine how to sustain this growth by differentiating themselves from their competitors. This may be achieved through various strategies, including network expansion, product innovation, service enhancement, or cost competitiveness. This current period of profitability provides an opportunity for airlines to invest in preparation for the next stage of post-pandemic growth.
Challenges in Bridging the Manpower Shortage Post-Pandemic
The aviation industry is currently facing significant manpower shortages across the board, which are impacting airlines, airports, and maintenance operations. Within Singapore, there are still thousands of vacancies in this sector waiting to be filled, and local aviation companies are hiring extensively across areas such as operations, engineering, and service. This trend has persisted since the easing of border restrictions in 2022, as the surge in travel demand had created an urgent need for the return of essential roles like cargo handlers, cabin crew, and maintenance engineers.
Talent Exodus and Competition from Growing Industries Fuel Workforce Shortages
The COVID-19 pandemic has disrupted the industry’s workforce, with many highly experienced professionals leaving the industry on early retirement packages that were aimed at reducing costs and maintaining operational solvency. As a result, these workers are unlikely to return to the industry after leaving the workforce. Moreover, many individuals who have been retrenched during the pandemic have found opportunities elsewhere in industries that offer greater stability and competitive benefits. It is hence challenging to attract these workers back to the industry, especially given the demanding nature of aviation jobs compared to other sectors.
Furthermore, the aviation industry is facing intense competition for talent from other industries. The pandemic has resulted in significant growth across several sectors, including e-commerce, logistics, and technology, which have been able to attract workers with better working conditions, higher remuneration, and more regular schedules. Some aviation roles have characteristics of variable hours and differing levels of physical and mental stress, which can make a return to the industry less appealing for those who have previously experienced these conditions.
Additionally, the lengthy training periods required for certain roles in the aviation means that, even if individuals were inclined to return to the industry, the time investment required before they can resume their positions may further deter them from doing so. The combined effect of these factors have created a shortage of pilots, technicians, ground handling staff, and other essential personnel in varying degrees of criticality, presenting a significant manpower challenge for the aviation sector.
Singapore’s Aviation Sector Races to Fill Vacancies Amidst Rising Demand and Training Gaps
While efforts are being made to increase hiring, it has been challenging to bring the workforce back to pre-pandemic levels and meet the rising demand for air travel and related services. For example, pilot recruitment was suspended during the pandemic and only resumed a couple years ago. Given that pilot training typically takes two to three years to complete, there is a significant disparity between the availability of qualified pilots and the current demand.
The same is true of technicians, whose specialist skills and lengthy training periods have been unable to keep pace with the surge in maintenance, repair, and overhaul (MRO) demand that has occurred post-pandemic. Additionally, staffing levels for ground handling and other support roles remain below pre-2019 levels, creating operational challenges for both airlines and airports as they strive to expand operations and resume their trajectory of growth.
To help fill the thousands of positions available across the industry, the OneAviation Careers Hub was created in 2022, providing services such as recruitment, job facilitation, and career advisory. It is a tripartite initiative by the Civil Aviation Authority of Singapore (CAAS), National Trades Union Congress (NTUC) Aerospace & Aviation cluster, and NTUC’s Employment and Employability Institute (e2i), and the service aims to attract, grow, and upskill talent to meet the demands of the recovering aviation industry. OneAviation has also hosted two annual career fairs, offering approximately 2,000 vacancies in 2022, and 1,700 in 2023, highlighting the additional requirements from the industry.
With the outlook for the aviation industry remaining positive, the demand for aviation personnel is also expected to follow this trend. The global fleet of commercial aircraft is projected to grow from ~33,000 aircraft in 2023 to ~45,000 aircraft over the next decade. Boeing forecasts that an additional 650,000 new pilots and 690,000 new MRO technicians will be required to operate and service these aircraft, with 40% of this demand concentrated in the Asia Pacific region alone.
Supply Chain Issues within the Aviation Market
Supply chain issues have presented significant challenges for airlines seeking to expand their operations in response to rising demand for air travel. Airlines around the globe have encountered delays in the delivery of new aircraft, limiting their capacity to expand their network and add new routes.
Consequently, they have sought to tap into the leasing market as an alternative source of aircraft capacity, though this too has faced limitations due to the demand for aircraft outpacing the available supply. This has forced some airlines to scale back their growth plans, limiting the potential for even higher revenue and profitability growth.
Additionally, certain technical issues, such as those related to the Pratt & Whitney GTF (Geared Turbofan) engines, have resulted in extended periods of aircraft grounding. Such operational disruptions hinder airlines’ ability to operate planned schedules effectively, causing significant financial impacts due to the resulting flight cancellations and delays.
Supply Chain Issues and Aircraft Shortages Lead to Cancellations and Operational Challenges for Airlines
In May of 2024, 33 flights operated by Scoot were cancelled within five days, along with several other re-timed flights. A significant number of these cancellations were due to supply chain issues, ranging from the shortage of aircraft spare parts, to engine issues on several of Scoot’s A320neos.
The current aircraft shortage can be attributed to three key factors: fewer fit to fly aircraft due to technical and supply chain issues, the retirement of older aircraft because of the pandemic, and the delays in the delivery of new aircraft. During the pandemic, many older aircraft were retired or were parked to reduce costs and to manage the reduced travel demand. As the industry recovers and demand for travel increases, there is a pressing need to reactivate the parked aircraft and to acquire new ones to replace the retired fleet so that airlines can accommodate the growing number of passengers.
However, the delay of new aircraft deliveries, coupled with the necessity for further checks and maintenance of existing aircraft, have restricted the capacity of airlines to expand their operations to pre-pandemic levels and to achieve their projected growth.
These issues are anticipated to continue into the medium term. Despite the efforts of manufacturers and suppliers to ramp up production to address the backlog, the complexity of the aviation supply chain, involving numerous specialized components from global suppliers, will likely prolong the resolution of these issues.
The reactivation of parked aircraft and the fulfillment of new aircraft orders are gradual processes, and any delays in one part of the supply chain can have cascading effects. It is likely that supply chains will not fully stabilize until at least 2025. Unfortunately, this timeline has been affected by the recent safety issues at Boeing, which have resulted in a cap on the production of the popular 737 MAX aircraft.
Boeing’s safety record has attracted significant attention, particularly in the wake of the 737 MAX incidents. This heightened scrutiny has prompted a renewed, more stringent focus on safety and regulatory compliance, leading to stricter oversight and longer certification processes for current and new aircraft production. The resulting overhang on the airline industry, apart from affecting safety perceptions of it, is from the delays in new aircraft deliveries. These delays are set to further constrain the airline industry’s growth.
Further exacerbating the challenges faced by the aviation industry, financial issues such as high interest rates, inflation, and fuel costs have placed strain on airline operations. Increased borrowing costs and operational expenses can lead to a lack of funds for investments in new aircraft, technology, and infrastructure.
Future Outlook
Economic Growth and Market Adaptation Drive Positive Outlook for the Aviation Industry, with Asia Pacific region as a Key Engine of Growth
We have observed that over the past 18 months that global airlines, including the Singapore Airlines Group, have enjoyed record profits. This is an encouraging indicator for the industry, although it is crucial to recognize that these results are largely influenced by the current constrained supply environment, resulting in higher passenger yields. With increased competition and an expansion in industry capacity, it is anticipated that there will be a reversion to the long-term mean in terms of financial performance.
The aviation industry is poised for growth in the near future. Economic expansion, as reflected in GDP growth, is typically accompanied by increased demand for air travel. Airlines are demonstrating confidence by investing in new aircraft and technology, as evidenced by substantial orders placed with manufacturers like Airbus and Boeing in 2023.
The Asia Pacific region is expected to be the fastest growing region for the aviation industry, driven by a growing middle class and rising incomes. The expansion of the e-commerce market will also have a positive impact on the air cargo industry in the long term. While the current challenges are significant, they are not permanent. Having weathered the pandemic, airlines are adapting and transforming to become much more agile and operationally efficient.
Airlines that have successfully managed themselves and adapted to changing market conditions have great potential to achieve significant growth in the coming years.
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