The sky’s the limit in Southeast Asia these days, as a burgeoning middle class takes to the skies on everything from business travel to journeys of exploration and tourism. That in turn has led to an explosion of growth in sales of aircraft in the region, as airlines compete for a rapidly growing new market.
That much was clear at the recent Singapore air show, where companies ranging from old and familiar names to new units aimed at specific market niches went shopping for planes. Not all sales were focused on the middle class, of course; military aircraft and their specialized needs also did well, as did the private jet market as the region’s HNW and UHNW looked for individual means of transportation. And not all sales were focused on vehicles, as support services saw increased demand as well.
As countries from Abu Dhabi and Australia to India, Malaysia and Singapore beef up air fleets and boost military capabilities, the takeaway for investors is that air travel carries a lot of potential. Both established airlines and startups are fighting for market share in an expanded air travel market in Southeast Asia, as a growing middle class seeks out budget travel options for long and short hauls, and all the accoutrements of travel are seeing the results. Not to be left behind, governments are boosting military air capabilities, spending not just on planes but on the weapons they carry and on drones to go where pilots don’t.
The Singapore air show in early February brought in $32 billion in orders, which sounds like a lot until you remember that only in November at the Dubai air show the total came in at $206 billion—with $162.6 billion of that coming in the first three hours, thanks to orders from Qatar Airways Limited, Abu Dhabi-based Etihad Airways PJSC, Emirates Airline and flydubai.
Still, there was plenty more business to be done in Singapore, with Japan Air and Hanoi-based VietJet opting for Airbus planes, Boeing doing so well that it may open a final assembly plant for its planes in China and Embraer having supplied the highest number of private jets in the region, with 147 in China alone. French aerospace company Dassault Falcon is seeing an expanding market for its wares in Indonesia, with its president, John Rosanvallon, touting his company’s jets as ideal for the region, which has a preponderance of short landing strips and high temperatures.
Bargain-hunting travelers’ ticket sales, while welcome to the bottom line, underscore the high price of fuel—something that has been very unwelcome to that same bottom line. Malaysia Airlines has ordered new planes from both Boeing and Airbus to upgrade its fleet, hoping that greater fuel efficiency will help it lower its expenses. The new planes also have lower maintenance requirements, something else that the airline hopes will help it fly away from its financial woes—it’s recorded losses for four consecutive quarters, and faces stiff competition not just from bargain carrier AirAsia on short and domestic flights, but also from AirAsia X on longer flights. It’s also fighting for market share against European and Middle Eastern carriers expanding their own routes.
While keeping prices down is paramount for airlines catering to the waves of middle-class air travelers in search of a bargain, it certainly hasn’t slowed their pursuit of that market segment. Hong Kong’s Chek Lap Kok Airport has become the third busiest air hub in the world, according to data from the Airports Council International; that’s exceeded only by Heathrow and Dubai International Airport. Chek Lap Kok is also becoming a hub for bargain flights that offer challenges to such established airlines as Cathay Pacific Airways. Small budget lines such as Peach Aviation (part of All Nippon), Silk Air, Scoot and Tiger (all three part of Singapore Airlines) and Jetstar (a joint venture of Qantas and Shanghai-based China Eastern Airlines) are giving the old-timers a run for their money as they pursue new travelers.
While all is definitely not smooth sailing—currency woes, in addition to fuel prices, challenge all the region’s competitors—expansion is still underway in Southeast Asia. According to John Blank, chief equity strategist at Zacks, plenty of investing opportunities lie in the sector—not just in aircraft companies, but in all the peripherals.
Blank said, “When you hear about [air travel] growth in Asia, one way to leverage that as an investor is leasing, aircraft leasing.” Even Myanmar is getting into the act, leasing 10 Boeing 737s from General Electric’s world leasing arm. Other hot possibilities are in airport construction—“in Indonesia, 40% of growth is in airports”—and similar facilities, Blank said.
As aircraft companies expand across the region and as air travel booms, those support services, such as maintenance facilities and pilot training schools, are definitely among the beneficiaries. Airbus has partnered with Singapore Airlines to launch a pilot school, and has also received a contract to support Thai Smile’s fleet.
And the airlines themselves, looking for ways to boost their own revenue, are becoming more inventive with fees. The International Air Transport Association has said that income from such nonflight services as sandwiches, in-flight entertainment and seat assignment fees could double. Not only charging for luggage and priority boarding, but offering passengers the possibility of shopping while on the plane, then picking up their purchases at their destination airport, could provide added income.
Considering that air travel has barely scratched the surface in some countries in the region—only 1% of India’s population of 1.2 billion engages in the practice—there’s still plenty of room to grow even without such ancillary sales. Malaysia, the Philippines and Indonesia all promise the potential for substantial expansion as well.
Blank said, “If [investors] want Asia, this is the place.”