While Covid-19 vaccines represent a light at the end of a very long tunnel for Singapore’s aviation industry, the outlook for 2021 is just as bleak or even potentially gloomier than 2020.

Passenger traffic for Singapore Changi Airport and the Singapore Airlines (SIA) Group could end 2021 at an even lower level than 2020, when traffic for both declined by over 80 per cent year-on-year.

Changi handled only 11.8 million passengers in 2020, an 83 per cent drop compared to the 68.3 million from 2019. It represented the lowest throughput for Changi since 1987.

The SIA Group, which includes budget airline Scoot and regional carrier SilkAir, flew seven million passengers in the calendar year 2020. This represents an 81 per cent drop compared to 2019 and marks the first time SIA carried fewer than 10 million passengers since 1994.

The 2020 figures do not fully portray the devastation brought by the pandemic as the year started normally with January traffic above 2019 levels.

Traffic started declining in February and by the end of March had virtually evaporated, though for the first quarter the overall year-on-year decline was a relatively modest 33 per cent for Changi and 26 per cent for SIA.

The picture of the last nine months of 2020 highlights the full extent of the damage. Changi passenger traffic declined a staggering 98.6 per cent from April to December 2020, while SIA passenger traffic dived 98.8 per cent, compared to 2019.

Changi handled only 719,000 passengers over the last nine months of 2020. This is equivalent to what the airport handled every four days prior to the pandemic.

The SIA Group flew only 350,000 passengers in the April to December 2020 period. This is half of what the SIA Group flew in an average week prior to Covid-19.

Traffic in Singapore has steadily improved since the peak of the crisis in April and May, when Changi traffic declined by 99.5 per cent and SIA traffic by 99.7 per cent year-on-year.

The decline rate lessened virtually every month since May, and in December traffic for both Changi and the SIA Group were at their highest level since March.

However, the improvements from a passenger volume perspective have been very modest and in December passenger traffic at both Changi and the SIA Group was still down 97.6 per cent compared to the year before.

DEMAND LAGGING CAPACITY GROWTH

The improvements over the last several months have not been driven by demand for travel to or from Singapore but are mainly due to an increase in transit passengers.

Transit travel resumed in a small number of markets in June and throughout the second half of 2020 was gradually extended to include more markets and airlines.

The SIA Group has steadily increased capacity since April and May, when its capacity as measured by available seat kilometres (ASKs) was down 96 per cent year-on-year.

ASKs have increased every month since, and in December 2020 were down a more modest 81 per cent compared to December 2019.

SIA Group has announced plans to continue growing ASKs in the first quarter of 2021 and has stated that its capacity will be at 25 per cent of pre-Covid levels by the end of March.

While SIA’s commitment to continue increasing capacity is noteworthy, it should not be viewed as an indication of improving demand or a recovery in air travel.

So far demand has significantly lagged capacity growth as SIA Group’s passenger load factor has dropped every month since July 2020, when it was 21.6 per cent.

In December 2020, SIA Group’s load factor was only 13.7 per cent — meaning on average only 14 out of every 100 seats were filled. In comparison, its December 2019 load factor was 87.6 per cent.

While load factors have been much lower than normal globally during the pandemic, SIA’s load factor is particularly low.

For example, SIA Group’s passenger load factor in November 2020 was 14.2 per cent compared to a 41.5 per cent average for all international flights globally and 31.6 per cent for all international flights in the Asia Pacific (based on data from the International Air Transport Association).

SIA’s load factor will likely continue to record month-over-month drops — continuing a concerning trend which started in August 2020 — over the next few months given that Singapore’s borders remain closed.

While SIA’s transit traffic may continue to grow, the gains will be very small and almost certainly smaller than the capacity increases.

New waves of Covid-19 cases in many countries and the emergence of the new United Kingdom strain have also led to new restrictions in some of SIA’s transit markets, impacting traffic volumes.

SIA’s recent and upcoming capacity growth is strategic rather than demand driven.

The hope is that later in the year demand will finally start to recover and SIA will be able to take advantage as it will have more capacity than competitors in key markets.

However, the timing and shape of the recovery curve will hinge on many factors, including how quickly governments can agree on new travel protocols and regulations for vaccinated passengers. 

HOW ABOUT GREEN LANES AND TRAVEL BUBBLES?

Passenger traffic in Singapore will not really improve until normal two-way travel resumes. Before the pandemic, this was Changi’s largest segment.

This is not likely to occur until at least the middle of the year but potentially could take a lot longer.

The six markets that Singapore has reopened to without quarantine — Australia, Brunei, China, New Zealand, Taiwan and Vietnam — have not generated typical two-way visitor traffic because the other market has not reciprocated and waived quarantine requirements for passengers arriving from Singapore.

Two-way business travel has been limited to reciprocal green lanes, a scheme which allows essential business travel without — in theory — quarantine on either side.

Passengers arriving on all seven green lanes — with China, Malaysia, Brunei, Japan, South Korea, Indonesia and Germany — combined have accounted for less than 1 per cent of the passengers Changi handled in the second half of 2020.

Onerous requirements and small quotas have impacted demand, and for some of the green lanes a quarantine requirement has been added after not being required initially.

Even if more green lanes are added in the coming months they are likely to be insignificant given the very small number of passengers each arrangement generates.

Air travel bubbles have the potential to generate more traffic as they allow two-way leisure travel but will also likely not have a significant impact.

Even if the planned air travel bubble with Hong Kong had not been delayed, it would have generated for Changi at most only 72,000 passengers in the first quarter of 2021 due to the limit on the number of flights.

In December 2020, Changi’s traffic would still have declined by over 97 per cent if the Hong Kong bubble had started in November as originally planned.

Other air travel bubbles are now under consideration but could be difficult to implement by the end of the first quarter due to the new waves of Covid-19 cases in many countries.

Given the current very challenging market conditions, Changi’s first quarter 2021 passenger traffic is likely to decline by around 97 per cent compared to pre-Covid levels.

Second quarter traffic should improve slightly driven by potential travel bubbles but the impact from these and the World Economic Forum will be relatively small. Traffic will therefore likely be down around 95 per cent compared to pre-Covid levels.

The second half of 2021 is hard to predict given several uncertainties, particularly whether countries will open borders quickly once inoculation rates reach high levels.

However, even in an optimistic scenario with international travel resuming between countries where a majority of the population is vaccinated, Changi’s traffic in the second half 2021 will likely still be down at least 70 per cent compared to pre-Covid levels.

A 70 per cent decline in the second half and a 96 per cent decline in the first half would result in 11.8 million passengers for Changi in 2021, matching the throughput from 2020.

This represents an optimistic scenario and most likely Singapore passenger traffic this year will be less than that of 2020.

There is no denying the recovery for Singapore’s aviation sector — and international travel globally — will be long and hard.

Domestic air travel will recover faster and in some markets such as China and Vietnam are already fully recovered but Singapore does not have a domestic market and therefore has to rely on borders reopening.

However, Singapore has a huge advantage over other Southeast Asian countries because it has provided an unrivalled level of support for its aviation sector.

This support, which takes many forms and will likely be extended for the duration of 2021, ensures the Singapore aviation sector will survive the crisis.

The outlook for 2021 is gloomy but the long-term outlook remains relatively bright and Singapore is well positioned to take advantage of potential consolidation in the region.

ABOUT THE AUTHOR: 

Brendan Sobie is the founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He was previously chief analyst for CAPA-Centre for Aviation.