Budget Airlines Benefit From Crisis in Asia

The International Air Transport Association’s chief executive officer, Giovanni Bisignani, recently said aviation was "in survival mode", and called on industry players to "resize and reshape" in the face of falling revenues. The IATA has estimated the damage for 2009 to the industry in Asia Pacific at over two billion Euros from a global forecast loss of almost six-point-five billion Euros.

Living on cash injections from the state

Asia’s biggest carrier Japan Airlines this week announced a major cost cutting and restructuring package, predicting a loss of more than 400 million Euros for the current financial year. Other carriers reporting losses, such as Thai Airways, Air India, Air Macau, China Eastern and China Southern were all expected to receive injections of government money.

The Sydney-based Centre for Asia Pacific Aviation said the region's aviation industry had entered "a dark chapter", being buoyed by billions of state funds and bank loans. Peter Harbison, the centre’s executive chairman, says government support will prevent the industry from consolidating.

"The industry is a creature of regulation," Harbison laments. "It is totally dysfunctional in any commercial terms of returns to capital. If it were a totally independent, unregulated industry, there would have been drastic rationalization. The fact is that it lumbers along with government support."

AirAsia still booming

But it is not all bad news. While many carriers are hit by loss of financial altitude, some key budget and low cost carriers have been able to fill the void. Leading the way is the Malaysia-based AirAsia. In the first quarter, the carrier reported a 26 per cent hike in net profit, boosted by rising passenger numbers. Airline executives say there is a shift in passenger traffic to lower cost travel.

John Koldowski, spokesman for the Pacific Asia Travel Association (PATA), confirms this assessment, saying, "in a climate where the pie is not growing that rapidly – if at all – to still be improving their numbers, AirAsia, one would assume, is taking market share from someone else."

Future optimism

Also upbeat over the future is Bruce Buchanan, chief executive officer for Australian-based budget carrier, Jetstar. "I’m very bullish about China," he says. "They will grow quite exponentially like we saw with the Japanese markets. The Chinese markets will replicate some of these trends, and it will happen much faster than we think."

With improved aviation-linked infrastructure, the Indian market is also forecast to grow in the medium term. The Pacific Asia Travel Association or PATA is upbeat for a recovery in the travel industry in late 2009, with consistent growth by early 2010. PATA research is forecasting 77 million international arrivals by 2011 into the region, up from 62 million in 2007.

Author: Ron Corben (Bangkok)
Editor: Thomas Bärthlein