Rocky ride for Asian airlines

January 13, 2010
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, SINGAPORE, Jan 13 – Asia\’s airlines should ride a fledgling pickup in travel demand this year, but higher oil prices, hesitant economic growth and increased airport security costs may stall momentum, analysts said.

The debacle at Asia\’s largest carrier Japan Airlines (JAL), which is on the brink of bankruptcy, is considered unlikely to weigh on the industry as a whole, although other airlines could be in line for government bailouts.

Asia\’s low-fare carriers have been less affected than their premium counterparts by the global economic downturn and continue to expand.

"There have been tentative signs of a pickup in demand for both passenger and cargo traffic in recent months," said Andrew Herdman, director-general of industry group the Association of Asia Pacific Airlines (AAPA).

"Nevertheless, yields remain weak, and fuel costs are still stubbornly high with oil trading above 80 dollars per barrel," he said in an email reply to AFP.

"Airlines are still struggling to reduce losses and move towards restoring profitability."

Yields refer to the revenue an airline makes on each passenger for every kilometre (mile) travelled.

In 2008 and 2009, regional carriers suffered total annual losses of more than four billion US dollars as the global economic slump eroded travel demand, Herdman said.

Passenger demand is estimated to have shrank 8.0 percent in 2009 from the year before, while cargo demand was 14 percent lower, he said.

Singapore Airlines posted its first quarterly loss in six years during the June 2009 quarter and deferred the delivery of eight A380 superjumbos. Australia\’s Qantas and Hong Kong\’s Cathay Pacific also saw earnings slump.

The International Air Transport Association (IATA) said it expects Asia-Pacific carriers to lose 700 million dollars this year, which is still an improvement from the 3.4 billion dollars scythed away last year.

Globally, IATA is forecasting a loss of 5.6 billion dollars for the industry this year.

Asia-Pacific airlines are perking up in line with stronger economies, IATA spokesman Albert Tjoeng said.

But he said that while passenger and cargo demand are rising, "there is still a lot of growth to recover" and that "we cannot anticipate any significant improvement in yields in the coming months".

"So conserving cash, controlling costs and carefully matching capacity to demand will be key to survival," he said.

Shukor Yusof, an aviation analyst with Standard and Poor\’s Equity Research, said JAL\’s woes were not endemic to the industry.

"JAL has been having these difficulties for a very long time," he said, noting that rival Japanese carrier All Nippon Airways is surviving the downturn.

But the Sydney-based Centre for Asia Pacific Aviation said several Asian carriers faced a similar predicament to JAL.

China Eastern Airlines, Air India, Garuda Indonesia, Thai Airways and Malaysia Airlines all needed government help to stay flying, it said.

Shukor cited rising oil prices, overcapacity in some airlines and the effect on costs of stricter aviation security measures following the Christmas Day attempt to blow up a US-bound flight from Amsterdam as among the industry\’s challenges this year.

However, Asia\’s budget airlines have managed to fly above the gloom with at least 45 low-fare carriers based across the region from Japan to Pakistan.

"Budget carriers which focused on serving the short-haul regional leisure market were less impacted by the global economic downturn," compared to global carriers serving long-haul and business passengers, said Herdman.

Small operator Zest Air plans to become the latest budget airline to launch services between Manila and Singapore.

Singapore\’s Tiger Airways has brought forward its order for five Airbus A320 planes to late this year and early 2011, from their original delivery dates in 2016, to boost its expansion into Asia and Australia.

It also launched a public share sale offer on Wednesday to raise about 246.8 million Singapore dollars (178 million US) to fund the expansion.

Analysts now see an increasing overlap as budget carriers expand into long-haul markets, Herdman said.

"We expect competition to remain intense in all segments of the business, but the major global network airlines are expected to thrive, even as the leading budget carriers continue to expand," he said.

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