Airlines in Asia-Pacific region face gloom in 2009

The International Air Transport Association (IATA) has forecast that airlines in the Asia-Pacific region are going to be badly hit, with losses reaching $1.1 billion in 2009.

Though the year-end festive season is traditionally a busy time of the year for carriers based in the Asia-Pacific region, things are very different in 2008 because of the global economic slump that led to reduction in passenger and cargo traffic.

The International Air Transport Association (IATA), the international industry trade group of airlines headquartered in Montreal, Quebec, Canada, leads and serves the airline industry in general.

Aviation analysts and airline executives have already predicted that the aviation industry’s outlook for 2009 will be gloomier than that in 2008.

Though the sharp drop in fuel prices has provided some reprieve for the airlines, air traffic demand has fallen as companies and tourists are cutting back on travel.

In a report, the International Air Transport Association had earlier warned that “the global aviation industry is facing its worst revenue environment in 50 years.”

According to IATA, carriers in the Asia-Pacific region, which account for nearly one-third of the global passenger traffic and 45% of the global cargo market, will be badly hit with losses to more than double from $500 million in 2008 to $1.1 billion in 2009.

IATA says that, globally, air traffic will fall 3% in 2009 – the first drop since 2001, when the September 11 terrorist attacks on the United States pounded the airline industry.

Aviation experts are of the opinion that airlines in the Asia-Pacific region are bound to cope with the downturn better than their peers in the United States and Europe because regional airlines have relatively strong balance sheets and more modern fleets. Also, according to these experts, a number of airlines – including Singapore Airlines, Malaysia Airlines and Chinese carriers – are state-run and hence they could get government support if needed.

Analysts also say that the Asia-Pacific region has less competition compared to the United States and Europe, where more number of airlines compete on the same routes.

The Hong Kong-based Cathay Pacific Airways has reported its first half-year loss since 2003 and said its full-year results would be “disappointing amid weakening revenue and losses from fuel hedging.”

Cathay Pacific is planning to park two freighters, offer unpaid leave to employees, delay construction on a cargo terminal and cut costs. It will also scale back services to North America but will add flights to Australia, West Asia and Europe “to keep passenger growth flat in 2009,” but the airline will not cut any destinations.

Singapore Airlines has said its third-quarter profit dropped by 36% and warned of “weaknesses” in advance bookings for 2009.

Though carriers based in Japan seem to be sitting pretty at the end of 2008, major airlines such as Japan Airlines and All Nippon Airways have reduced their revenue forecasts. In Japan, too, the economy is slowing down.

Carriers based in Australia, China and South Korea are struggling to survive in the face of economic slowdown.

In India, airlines are expecting lower demand following the terror attacks in Mumbai in November 2008. India’s state-run airline Air-India is seeking government aid to cope with the severe slump.

Qantas Airways, the national airline of Australia, said in a statement that it has cut 1,500 jobs and plans to reduce capacity to the equivalent of grounding 10 planes. It also trimmed its full-year pre-tax profit target by one-third.

As for China, the forecast of boom in air travel during the year of the Beijing Olympics did not happen. China’s state-run airlines posted combined losses of 4.2 billion yuan ($613 million) for January-October 2008.

Chinese media have reported that authorities have urged state-run carriers either to cancel or delay aircraft deliveries. China’s two biggest airlines – China Eastern Airlines based in Shanghai and China Southern Airlines based in Guangzhou – are about to receive 3 billion yuan ($440 million) by way of capital injection from the government.

China Eastern Airlines, which had earlier failed to sell a stake to international investors, is now likely to merge with rival Shanghai Airlines, an ally of China’s flag carrier Air China.

In contrast, AirAsia, based in Malaysia and the region’s biggest budget airline, is adding flights and expanding despite the slump. In November 2008, AirAsia became the first airline in the world to do away with fuel surcharges on all its flights.