Airlines from ASEAN have adopted a ‘China+1’ strategy. Here’s why

Airlines from ASEAN have adopted a ‘China+1’ strategy. Here’s why

More than three years after its onset, speculation continues on the origin of the COVID virus, the responses of governments, and the true numbers of infected and dead. The pandemic forced the world to shut down, and the largest shutdowns were in China. Companies that had a manufacturing base in that country were impacted the most. Thus came ‘China +1’, a strategy aimed at diversifying exposure to China and adding manufacturing facilities in at least one other country in the region. This strategy, it seems, has not been restricted to manufacturing, and has been extended to travel as well as aviation.

China was a large source market for multiple countries in the region. This included Thailand, Malaysia, Indonesia, Singapore, and Vietnam. The closure of China, even as the world opened up, meant that these countries were struggling.

Surprising as it may seem, aviation has been no different. In pursuit for diversification, not just countries and tourism boards, but airlines, too, have been relying on traffic from India to sustain and grow. Worldover, almost all countries have crossed their pre-COVID numbers for air traffic as well as tourism.

China + 1 for ASEAN carriers

India’s Bilateral Air Services Agreement (BASA) with countries in ASEAN allows for open skies to 18 airports in India. These include Patna and Aurangabad, which have not seen scheduled international flights, and also metros Ahmedabad, Lucknow and Kochi.

Vietnamese carrier VietJet started operations to India just before COVID. Vietnam Airlines joined in later. The quota for flights from the Vietnamese side was quickly exhausted with flights from Hanoi and Ho Chi Minh to Mumbai and Delhi. VietJet is making the most of the open skies policy and has already added flights to Ahmedabad and Kochi, and already announced flights to Trichy, a bastion of Malaysian carriers AirAsia and Batik Air (the erstwhile Malindo) and one of the handful of airports in India where international traffic is more than domestic traffic.

Malaysia Airlines has opened reservations for its flights to Amritsar and also announced flights to Trivandrum and Ahmedabad. This involves getting back to destinations where it has operated in the past and withdrawn for not being able to sustain with pressure on profitability. The India-Malaysia bilateral also sees near-full utilisation by the Malaysian side, while there are hardly any flights from the Indian side, with IndiGo the sole operator. AirAsia, AirAsia X, Batik Air Malaysia and Malaysia Airlines operate to India from the Malaysian side.

Singapore Airlines, too, has focused on Tier 2 cities in India with the announcement of an increase in flights to Ahmedabad, while Thai AirAsia has expanded to secondary markets such as Lucknow. Cambodia Airlines will launch flights to Delhi this winter, opening a new market for the airline.

The expansion to cities beyond the metro routes is to diversify the network beyond China for the longer term and grab a slice of traffic originating from here to Indonesia or Australia among other destinations.

Salami slicing

There is a significant population of Indians in Australia with a large diaspora having roots in Punjab or Gujarat. The expansion of Vietnamese and Malaysian carriers to these places is to tap some of the traffic to Australia otherwise handled by Delhi or Bengaluru, which have direct flights to cities in Australia and the traditional route via Singapore.

There is a two-way tussle in the market. The first being Indian carriers launching flights helping passengers bypass the ASEAN hubs, like IndiGo’s flights to Jakarta, Hanoi and Ho Chi Minh city. Traffic to these places was traditionally flown one stop via Kuala Lumpur, Bangkok or Singapore.

The second being the launch of additional flights to India, as in the case of VietJet and Vietnam Airlines’s flights to Mumbai and Delhi, the two largest markets to Vietnam from India. This makes it cheaper and easier for passengers, leading to the traditional hubs Kuala Lumpur, Bangkok and Singapore losing some traffic.

With Chinese tourists yet to return in full numbers and Indians travelling more than ever before, the importance of India in the scheme of things for carriers from ASEAN is at an all-time high.

What next?

The fight for traffic is going to see air fares drop to an extent, at a time when airfares have been inching to new highs due to a mix of an increase in travel, shortage of planes and increase in input costs. Not all carriers will be able to sustain these new routes and a route rejig will be on the cards in future.

How the China market plays out will also decide how airlines deploy capacity. The need for profitability trumps the need for connectivity and if another market pops up, airlines could vacate these routes and shift there. But there remains a possibility that these routes will perform better than they did in the past and airlines may invest more to develop them. In this background, are Indian carriers looking at such routes or still relying on the top six airports—Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Hyderabad—to launch international flights?