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A traveller walks through the arrivals hall at Hong Kong International Airport on August 8. The aviation industry in Asia is unlikely to recover to 2019 levels before 2025. Photo: Bloomberg
Opinion
Inside Out
by David Dodwell
Inside Out
by David Dodwell

Bleak prospects for Asia, Hong Kong economic recovery amid devastated aviation industry

  • Mainland China’s first steps to open up to international travel will be critical in driving recovery in Hong Kong and most parts of Asia
  • But airline rationalisation, high inflation, a coming recession, plus the impact of war, climate change and fuel taxes, are likely to warrant caution
From the autumnal UK in October to balmy Dubai in November, and now in the northern Philippines until early next year, I have used the past few months to make up for three years of lost contact with closest family and friends. Some call it “ revenge travel”, but I prefer to see it as the start of a return to life as it should normally be lived.

For all my four decades regarding Hong Kong as home, among its many advantages was the easy access not just to all of Asia but to hundreds of destinations across distant continents. It has lost that advantage in the past three years, and it is uncertain whether it will ever fully recover.

If not, we will have lost not just our role as a globally important aviation hub but have inflicted irreversible harm on our entire economy. Financial Secretary Paul Chan Mo-po has laid down markers for recovery, but there can be no underestimating the scale of the challenge and the time that will be needed to restore activities that for decades we simply took for granted.
For an economy of 7.4 million people to lose overnight the stimulus and spending power of more than 60 million visitors a year can neither be underestimated nor easily calculated. It is easy to count the catastrophic collapse in airport arrivals or border crossings, the collapse of the exhibition and trade fair activity, the empty hotel rooms. But what about the restaurant meals not eaten, the retail shopping not done, the taxi journeys not taken?
If I estimate that a quarter of a million jobs were lost in Hong Kong, with a further quarter of a million working people today living on lower incomes, few would contradict me with any confidence, even if I was hard-pressed to prove my arithmetic accurately. It is such numbers that underscore Chan’s prediction that 2022 will see a 3.2 per cent contraction of our economy.
So, when International Air Transport Association (IATA) director general Willie Walsh talks of Hong Kong being “devastated”, he reflects the well-researched view of aviation experts worldwide. “Cathay Pacific is a shadow of its former self,” he said at an aviation conference in Doha in September. “Hong Kong has lost its position as a global hub and will struggle to regain it because other hubs have taken advantage of it.”

02:33

South Koreans rush for ‘revenge travel' as Covid-19 rules ease

South Koreans rush for ‘revenge travel' as Covid-19 rules ease

In a global aviation industry that has been devastated by the Covid-19 pandemic in the past three years, Hong Kong sits among the most devastated. Even today, as the first glimmers of recovery emerge, our airport is welcoming about 2 per cent of the passengers who arrived in 2019.

An estimated 45 airlines – including Qantas, Air France, American Airlines, United Airlines and Virgin – have halted direct services to Hong Kong. British Airways has restored services only in the past week.
Cathay Pacific reported losses of HK$5 billion (US$642 million) in the first half of 2022 after aggregate losses of more than HK$25 billion in 2020 and 2021 and has shed 8,400 staff. It recently said it hoped to recover to 70 per cent of its pre-Covid-19 capacity by the end of 2023. By comparison, competitor Singapore Airlines aims to recover to 81 per cent of services by this Christmas.
Hong Kong’s airport, one of the world’s top international airports in 2019 according to Skytrax, has dropped like a stone. According to the airline intelligence service Official Airline Guide, Hong Kong has dropped out of the top 50 aviation hubs worldwide. For our airport, so for our economy overall.

Don’t blame the world, Hong Kong’s economic wounds are self-inflicted

IATA’s own forecasts for the recovery of the global aviation industry see the Asia-Pacific region being a laggard compared with North America. It sees the global industry recovering from losses of US$137.7 billion in 2020 to a modest US$6.9 billion loss this year. Only in 2023 will the industry claw its way back into the black at US$$4.7 billion.

This recovery is almost entirely because of strong growth in North American domestic aviation. Europe is expected to edge to around US$620 million in profit, while the Asia-Pacific is still forecast to report losses of around US$6.6 billion and cannot expect recovery to 2019 levels before 2025.

Asia’s aviation recovery – as with our own economy – needs an end to China’s “zero-Covid” policies. Beijing’s first steps to moderate domestic lockdowns and begin the process of opening its borders to international travel will be critical to driving recovery in Hong Kong and most parts of Asia in general.

04:41

Excitement and anxiety as China starts to reopen after zero-Covid

Excitement and anxiety as China starts to reopen after zero-Covid
Even with China’s decision to open up, few in our region predict a return to strong growth with any confidence. Domestic travel is likely to recover faster than international, but the network rationalisation, including shedding of workers, of the past three years is likely to make recovery slow. High fuel prices are likely to keep even “revenge travellers” like me on a tight leash.

This takes no account of the economic dampening because of inflation, an oncoming recession, continuing war from Russia’s invasion of Ukraine and the impact of climate change and fossil fuel taxes on economic activity in general and aviation in particular.

The upcoming Year of the Rabbit may be associated with long life, peace and prosperity, but Chan is right to stay cautious.

David Dodwell is CEO of the trade policy and international relations consultancy Strategic Access, focused on developments and challenges facing the Asia-Pacific over the past four decades

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