Asian-Pacific airlines better performers amid global storm

Regional carriers better performers and on profitable course despite economic problems and volatile oil prices besetting the industry

PUBLISHED : Tuesday, 02 October, 2012, 12:00am
UPDATED : Tuesday, 02 October, 2012, 3:38am

Strong passenger demand has led Asian-Pacific airlines to weather the global turbulence that has engulfed the industry better than other carriers despite economic woes and volatile oil prices, the head of the industry body said.

Tony Tyler, the director general and chief executive of the International Air Transport Association, said airlines in the region were set to generate profits of US$2.3 billion this year. This was US$300 million more than the association's projections in June but less than a third of the US$7.6 billion they made in 2010.

Tyler said Asian-Pacific airlines were "expected to be the best performers" in terms of profitability. "Chinese domestic demand is still growing at nearly 10 per cent," he said. "And the demand for regional and long-haul travel including in the premium classes has held up better than expected in the face of economic uncertainty."

Tyler said overall, the global industry was on course to rake in US$4.1 billion this year, compared with the association's estimate of US$3 billion in June and profits of US$8.4 billion last year.

Tyler said that while the "fall in profitability this year will not be as bad as we had previously expected … we should not get too excited. This is a US$1.1 billon revision on revenue of US$636 billion. So the net profit margin will be 0.6 per cent instead of 0.5 per cent."

Brian Pearce, Iata's chief economist, said the improvement was based on airlines' second-quarter results and the association was "still anticipating a tough second half".

Tyler and Pearce were speaking in a conference call from Singapore.

Iata has forecast global profits of US$7.5 billion next year, with Asian-Pacific carriers contributing US$3.1 billion partly because of a rebound in cargo demand.

Consolidation, through airline mergers and failures, and high utilisation as airlines parked less fuel-efficient aircraft supported overall profitability, the executives said.

Asked how long the doom and gloom would last, Tyler said the industry had seen far worse, but conditions would be "very difficult for the industry as long as fuel prices remain high". There were also government burdens, including issues such as taxation, inadequate infrastructure and the inefficient use of airspace.

Tyler said airlines had become resigned to high and volatile oil prices.

Commenting on the performance of Asian airlines, Pearce said "profits had fallen a long way" since 2010 when carriers "had a great year because of the strength of the recovery in the cargo markets".

"With 40 per cent of the global cargo market, the region's carriers are the most exposed to weak cargo demand" caused by subdued consumer demand owing to economic woes in Europe and North America, Tyler said.

"Over the first eight months of the year, cargo demand was down 6.6 per cent on previous year levels," he said, although this had been offset by relatively robust passenger traffic. "China, for example, continues to have the fastest growing major domestic market, experiencing 9.4 per cent growth over the first eight months of the year," he said.