Profits Under Pressure at Asian Airlines

Profits at Asian airlines are likely to keep falling next year, underscoring pressures in the region despite rosy projections for demand and a recent string of big orders for planes.
The International Air Transport Association projected that earnings for airlines in the Asia-Pacific region will fall 8% next year to $2.3 billion, following a 69% drop this year. The trade group projected that airline profits world-wide will tumble 29% next year to $4.9 billion, after dropping 56% this year, citing high fuel prices and weak economic growth in North America and Europe. The projections for 2012 were IATA's first, while the forecasts for this year were revised upward from the group's June report.
The Asia-Pacific region's resilience next year relative to the world at large reflects continued strong bookings growth across the region. Nevertheless, the outlook indicates that a region known as a bright spot for aviation still faces major challenges, such as a surge in low-fare travel that is changing the dynamics of the market and causing pain and uncertainty for some airlines. The low-fare trend also is increasing labor unrest as airline employees worry that the push will cap growth in wages or lead to layoffs at less-competitive carriers.
"The new-model carriers are having a stimulating effect on the market" and adding to overall profits as they attract millions of first-time fliers, said Tony Tyler, IATA's director general and chief executive. But "they are also adding to the competitive environment to the traditional carriers."
Like all airlines world-wide, Asian carriers are struggling with stubbornly high fuel costs. That is pushing some of them to spend heavily on new, more-fuel-efficient planes and to look for other potentially expensive ways to attract customers, such as cutting ticket costs and opening new routes.
National carriers across the region, some of which have long histories of receiving government assistance, have been starting budget airlines or joining forces with low-cost upstarts to avoid missing out on the expected boom in demand from Asia's growing middle class. But that is adding to profit pressures.
The European Aeronautic Defence & Space Co. unit projected that India, at 9.8%, and China, at 7.2%, would have the fastest growth in passenger traffic on domestic routes during the next 20 years.
Asian carriers placed record orders for new planes this year. AirAsia and Indian budget carrier IndiGo each ordered more than 175 new planes at the Paris Air Show in June.
20/09/11 Wall Street Journal

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Categories: Foreign Sep 2011, Indian Aviation- In General Sep 2011