Beyond vaccinated travel lanes, how else can Singapore help its aviation sector recover?

The recently announced expansion of Singapore’s vaccinated travel lane (VTL) scheme from two to 11 countries will kickstart an initial recovery phase for the country’s battered aviation and travel industries.

However, a meaningful increase in passenger traffic is possible only if the VTL scheme is significantly expanded.

Based on the cap of 3,000 arrivals per day for the 11 countries combined, the maximum impact of the VTL scheme for Changi Airport is 3 per cent of pre-Covid passenger traffic.

This means Changi Airport traffic could increase from about 4 per cent of pre-Covid levels currently to about 7 per cent in December based on full flights to and from the 11 VTL countries under the scheme.

This figure could go up to 8 or 9 per cent of pre-Covid levels in December  after factoring in an increase in transit passenger traffic as more markets in the Asia Pacific gradually start to reopen.

For the full year Changi Airport will handle less than three million passengers, representing a more than 95 per cent decline compared to 2019.

WHAT IT MEANS FOR SIA

For the Singapore Airlines (SIA) Group, the maximum impact of the VTL scheme is 4 per cent of pre-Covid passenger traffic.

In December the SIA Group will be operating 63 weekly VTL flights from 17 destinations in 11 countries, offering an average of 2,220 seats per day.

The 11 countries are: Brunei, Canada, Denmark, France, Germany, Italy, the Netherlands, South Korea, Spain, the United Kingdom and the United States.

The SIA Group currently has only six weekly VTL flights, including five to Germany and one to Brunei.

 SIA Group’s passenger traffic could increase from about 5 per cent of pre-Covid levels currently to up to 9 per cent in December, based on full flights from the VTL destinations, and potentially reach 10 per cent or 11 per cent when factoring in increases in non-VTL and transit traffic.

While a welcome increase and positive initial step for SIA, this hardly signifies a recovery.

SIA’s load factor will remain at unsustainably low levels despite capacity at less than 40 per cent of pre-Covid levels.

The group’s average load factor has been less than 20 per cent every month since the start of the pandemic.

EXPANDING VTL CAP

While VTL flights to Singapore will be full or nearly full in December, driven by pent-up demand for travel without quarantine, the rest of the network will continue to operate at below 20 per cent load.

The VTL scheme is creating an imbalance as demand for the VTL flights exceed supply while most non-VTL flights will continue to operate nearly empty, making it impossible for SIA to return to profitability in the near term.

VTL demand was very high as soon as Singapore announced an expansion of the scheme to 11 countries on Oct 9, resulting in long hold times at SIA’s call centre and queues at its customer service centre at Ion Orchard.

Demand has surged even more following the Oct 11 announcement permitting unvaccinated children aged 12 and below on the dedicated VTL flights, reversing earlier requirements allowing only vaccinated travellers regardless of age.

The daily cap of 3,000 arriving passengers is well below demand, particularly for peak travel periods such as the December school holidays.

Demand is particularly exceeding supply for certain popular destinations such as London.

There is a fixed cap for each VTL country and for six of the 11 countries SIA shares this cap with foreign airlines.

The cap is difficult for airlines to manage as it contradicts the economics of demand and supply.

Capacity is being artificially constrained and competition is limited as passengers are permitted to take dedicated VTL flights only when travelling to Singapore.

 Passengers are able to take non-VTL flights from Singapore with the exception of South Korea but this creates an imbalance, leading to headaches and inefficiencies for airlines, as there are a lot more options for flights in one direction than the other.

There is no precedent for VTL — no other country has adopted a similar scheme as it reopens borders.

While there was some merit to the concept of dedicated VTL flights in order to avoid mixing with transit passengers, this has become moot as Singapore has started permitting transit passengers on VTL flights as part of the recent changes to the scheme.

The concept of dedicated flights carrying only vaccinated passengers also has now been compromised as unvaccinated children are now permitted.

Requiring the dedicated flights in only one direction already meant that passengers were mixing with unvaccinated passengers and transit passengers from higher risk countries on flights from Singapore.

VTL was never viewed as a permanent scheme but the sooner Singapore transitions away from it the faster the market can recover.

Abolishing dedicated flights would allow SIA to naturally respond to demand and also compete better with other airlines in the region that aren’t saddled by such requirements.

Thailand for example is not imposing any caps on flights or arriving passengers as it reopens to vaccinated travellers from 10 countries on Nov 1.

Australia also has not imposed any cap on the number of vaccinated residents that can return to Australia as it reopens to outbound travel — starting with New South Wales in November.

Singapore has long maintained that any reopening will be cautious and calibrated, taking into account public health concerns and the Covid situation around the world.

Transport Minister S Iswaran has described the VTL scheme as a “pathfinder” towards the goal of safe resumption of international aviation travel and that Singapore is currently exploring VTLs with more countries and regions.

This means that it is unlikely to drop the VTL scheme until at least early 2022.

However, there is merit in expanding the VTL cap as an interim step, particularly for the peak end of year holiday season.

 Expansion of the cap may not be immediate but is more likely to occur in November, once the expanded scheme has been in place for a few weeks and assuming, like the initial pilot phase of the scheme, does not result in many imported cases.

SIMPLIFYING CLASSIFICATION OF COUNTRIES FOR BORDER MEASURES

Singapore could also consider other policy adjustments to help accelerate the aviation and travel industry recoveries with little risk given that the country has now started transitioning from a zero-Covid to endemic strategy.

One meaningful adjustment would be to simplify the four-category system for classifying countries and border measures.

Currently, there are 41 countries or territories in category two compared to only four in category one and five in category three while the rest of the world is in category four, which still requires travellers to serve a stay-home notice at a dedicated facility.

Category two is complicated as 11 of the countries are under VTL while the other 30 have a seven-day home quarantine option.

Among the 30 are several European countries that are part of the border free Schengen Area but VTL passengers can only move between the six VTL Schengen countries and not cross the invisible borders with the other Schengen countries that are in the same category but not part of the VTL.

Treating the entire Schengen Area as one would be sensible and easier to manage.

Having so many categories is also unnecessarily complicated, particularly given the small number of countries now in category one (no quarantine) and category three (10 days home quarantine).

Many countries in other regions have eliminated similar classification systems, which can be arbitrary, and in the Asia Pacific some countries are reopening without any differentiation.

For example, Australia and Malaysia are treating every country the same with their new policies for allowing its vaccinated residents to travel overseas and return with home quarantine.

Countries which still have classification systems generally have two simple categories. 

Singapore could also follow South Korea and many countries outside Asia in implementing a blanket policy enabling vaccinated residents to return without any quarantine.

For South Korea there is a rigorous and sensible testing programme with three Covid tests required prior to departure, on arrival and on day seven.

There is of course some risk in adopting this kind of policy.

But the risk is relatively low and manageable given the low number of imported cases while the reward is high in terms of economic benefits.

Globally international passenger traffic is now at about 12 per cent of pre-Covid levels and will continue to recover over the next few months, eventually reaching 50 per cent of pre-Covid levels by the end of 2022.

In order to maintain its position as a global hub it is important for Singapore to catch up with the global average and start recovering as fast as the overall market.

However, without abolishing the VTL scheme and making other policy adjustments Singapore will continue to recover slower than the global average, impacting its competitiveness and hub status.

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.