Tighter competition and a slowdown in international tourism growth has prompted airlines registered in Cambodia to scale back their fleet expansion plans and shift focus to serving the more promising Chinese tourist market, new research shows.

After rapid expansion in 2014, the size of the Cambodian fleet was relatively stable in 2015, with just one new aircraft added last year, the Centre for Asia Pacific Aviation (CAPA) said in a report released yesterday.

Cambodia’s fleet nearly doubled in 2014 with the launch of two new airlines – Bassaka Airlines and Cambodia Bayon Airlines – as well as Sky Angkor Air’s addition of three wet-leased aircraft for seasonal use and the purchase of a sixth aircraft by flagship carrier Cambodia Angkor Air. The additions increased Cambodia’s fleet from eight to 15 aircraft.

Growth, however, slowed last year as three airlines held steady, with only Bayon acquiring an additional aircraft to bring the total to 16 aircraft.

While some further fleet growth is expected this year on existing orders, the Cambodian market presents significant challenges that could set back airline expansion aspirations, the CAPA report said.

“The domestic market has undergone rapid growth, tripling in size of the last two years, but is limited in size and generally not profitable,” it said. “In the international market there is intense and increasing competition from foreign airlines.”

Some of the fiercest competition is on routes between Cambodia and Thailand, which account for about a quarter of total international seat capacity from Cambodia.

Four Thai carriers – Bangkok Airlines, Thai Airways, Thai AirAsia and, most recently, Thai Smile Airways – dominate the routes, posing a significant challenge for the much smaller Cambodia Angkor Air.

“For local traffic, intense competition, particularly from Thai AirAsia, drives down fares, making it difficult for smaller Cambodian competitors that lack scale,” the CAPA report said.

Other international routes to Cambodia have also seen competition growing as the number of scheduled flights increases against a slowdown in overall tourist traffic from key markets.

Cambodia Airports, the private company that manages the Kingdom’s three international airports, expects overall passenger growth to slow to between 7 and 9 per cent this year, which would end its six-year streak of double-digit growth, the report noted.

It said the tepid forecast was based on slower arrivals, particularly at Siem Reap, the Kingdom’s busiest airport and gateway to the temples at Angkor Wat.

South Korean and Japanese visits to Siem Reap declined by 10 and 13 per cent last year, respectively, and were expected to remain flat through 2016. Chinese visitor arrivals grew 16 per cent in 2015, but paled the staggering 29 per cent growth recorded one year earlier.

“Siem Reap is definitely slowing down,” said Brendan Sobie, chief analyst at CAPA. “This impacts more the airlines that rely heavily on Siem Reap [rather] than Phnom Penh, where the market remains strong.”

Among these is Sky Angkor Airlines, an airline based out of Siem Reap that was originally geared toward serving the highly seasonal South Korean market.

However, with four carriers now operating flights on the Seoul-Siem Reap route, and tourism traffic on this route in decline, Sky Angkor has cut back its seasonal wet-leased fleet and directed its existing aircraft toward the broader Chinese market.

The airline now serves two destinations in South Korea – Seoul and Busan – and nearly a dozen cities in mainland China, mostly on a charter basis, with many added in the last three months. It has also experimented with seasonal charters from Sihanoukville to China.

Steve Kim, vice president of Sky Angkor Airlines, confirmed that the airline had reduced seat capacity and frequency on flights to South Korea, and was shifting its focus toward the Chinese market.

“Cambodia’s tourism market for South Koreans is almost more than 15 years old,” he said. “It’s going down and I don’t think it will increase as before. However, the China market will lead Cambodian tourism [growth,] so we are looking to this market now.”

He said that the airline was also considering introducing direct service from Phnom Penh to China.

Cambodia Angkor Air has also directed its international expansion toward China, which despite slowing growth offers the biggest opportunity for passenger growth.

“Besides local destinations, nowadays Cambodia Angkor Air is mainly focused on the Chinese market as the biggest destination to focus on,” said Eng Molina, deputy general manager of sales for the airline.

The airline currently has two scheduled flights to Shanghai and Guangzhou, and operates charter flights to five other Chinese cities, according to Molina.

“We will continue to add more, focusing on Beijing,” he said. “It is a very important market for us.”