Will Asia save world aviation?

Global aviation has only just returned to profitability, but the world’s airlines are flying into a storm of debt, rising fuel bills and a looming US recession – but Asia could be a bright spot, according to the IATA.

"After over US$40 billion in losses 2007 finally saw the industry return to profitability," said International Air Transport Association (IATA) chief Giovanni Bisignani.

"Airlines made US$5.6 billion on revenues of US$490 billion. That is less than a 2% return, so no investor is going to get too excited. And tough times will continue. Airlines are US$190 billion in debt.

"Oil is pushing US$100 per barrel and accounting for 30% of operating costs or a total bill of US$149 billion. The revenue cycle peaked in 2006 and the negative impact of the credit crunch is still being calculated. Airlines may be out of intensive care but the industry is still sick," Bisignani said.

Throughout the crisis, he said, Asia was a rare good news story with double digit growth, fast developing new markets in India and China, legendary service levels.

"Asia is home to some of the industry’s strongest carriers and best and newest airport infrastructure. Air transport plays a pivotal role in the region’s economy supporting 10.5 million jobs and US$807 billion in economic activity.

"So all is good? There is no need to change? I see a region full of promise but with some very big challenges. First the competitive challenge from the Middle East. Just look at Dubai. With nearly 35 million passengers, it now handles nearly as much traffic as Changi. And it serves 159 destinations—37% more than Changi. Already Dubai is developing Jebel Ali airport to serve 120 million passengers a year. In total, the Middle East is spending US$38 billion on infrastructure. So the competitive challenge will be broad and it will not only be competition for market share and infrastructure.

"Finding skilled personnel will be another challenge. To pilot the 16,000 new aircraft needed by 2020, we need to train 17,000 pilots a year. That is 40,000 more pilots than current capacity. With fast growing markets the need in Asia will be large for all licensed personnel – pilots, mechanics and cabin crew. But competition is always good. It breeds innovation and change for those who engage. For those who don’t … the competition ends quite quickly.

"The third is a deteriorating bottom line. Asian carriers topped the profitability chart in 2002 with US$1.7 billion. That declined to US$ 700 million last year, even as the industry went from huge losses to a US$5.6 billion profit. Capacity expanded by nearly 40% over the same period and yields dropped, taking profit margins with them. Asian margins went from 4% in 2002 to less than 1% last year. Going forward, I see more of the same. This year Asian capacity will expand by 8.8% with 427 deliveries expected in 2008 and another 450 aircraft in 2009. Demand is only expected to grow 6.4%. This is not a recipe for long-term health.

"But growth does bring opportunities, even if we need some short-term business adjustments. And no matter how you do the math, Asia will grow. It is over 50% of the world’s population. And by 2010 it will be our largest single market, accounting for 27% of all travel and nearly 300 million more travellers than today. The question is: can Asia handle this growth responsibly… and profitably? Along with the commercial race for market share, we need to see a race to lead the industry with sound policies and innovation," Bisignani said.

Singapore Airlines chief executive Chew Choon Seng said carriers were not immune to a US-led global economic slowdown, but that the city-state’s airline should weather the challenge because of its links to China and India.

"I think the aviation industry tends to reflect the state of the economies around the world, so there will be some impact on demand, for example," Chew told reporters.

 

MREC HERE

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