The real question is not whether airlines would survive another recession so soon after the 2008/2009 global economic meltdown, but how successfully each will adapt to the redefined aviation landscape.
According to the International Air Transport Association, passenger numbers have increased but 2012 profit will fall from US$6.9 billion (S$8.9 billion) to US$4.9 billion. It means airlines are incurring higher costs or enjoying lower yields, or that capacity growth has outpaced demand.
The prolonged volatility of the global market reaffirms the lessons of the previous downturn - lest they have been forgotten - and provides a respite for the airlines to re-strategise, at least for those who have wised up to knowing that, going forward, it cannot be business as usual.
The market has shifted downward, leading to a flourish of budget carriers including joint-ventures and subsidiaries established by full-service airlines to protect their turf. Among them is Singapore Airlines' Scoot, which is expected to commence operations next year on routes beyond the four-hour duration of the traditional budget model, targeting China and Australasia.
SIA is pushing the evolution of the budget model from a mere no-frills entity in a segregated market into a viable competitor in the larger market - something that has happened in Europe and the United States and was preceded by budget long haul flights such as AirAsia X's services from Kuala Lumpur to Paris and London.
Interestingly, India's Kingfisher Airlines has decided to exit the budget market and focus on full-service operations although India's low-cost traffic is booming. Kingfisher CEO Sanjay Aggarwal, foreseeing impending saturation, said: "Capacity induction of the LCCs (low-cost carriers) has outpaced the demand growth in the domestic market. (It) will potentially lead to substantial overcapacity and a price war with declining yields."
11/11/11 David Leo/Today Online
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