Asia's airline industry changes amid challenging environment

Singapore
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The face of Asia's airline industry is changing amid challenging market conditions, even as carriers take steps to cope with a challenging and increasingly competitive operating environment.

These factors will have a long-lasting impact on both profitability and the look of the industry, says Andrew Herdman, director-general of the Association of Asia Pacific Airlines (AAPA).

Important developments in 2012, which has been a "pivotal year" for air transport globally, include an acceleration in the retirement of older aircraft in favour of newer fuel-efficient ones, the growth of long and medium-haul low-cost airlines, alliances between full-service carriers and low-cost carriers in Japan, and partnerships between premium carriers such as that between Qantas Airways and Emirates Airline.

"Ground-breaking deals that would have been unimaginable a year ago are rapidly turning previous rivals into long-term strategic partners. The new competitive landscape is providing consumers with a wide variety of new travel options and adding tremendous momentum to the rise of the Asian carriers in the global industry," says Herdman.

He was speaking on the sidelines of the AAPA's assembly of presidents in Kuala Lumpur.

However, he cautions that while Asian airlines collectively remain the most profitable in the world, profit margins still remain very slim as high oil prices continue to have a detrimental impact on bottom lines. The cargo market, in particular, remains weak amid the economic slowdown.

While intra-Asia cargo movements are growing, much of the air freight capacity from the region is still skewed toward destinations in Europe and the USA where the economic growth remains anaemic.

"As Asian carriers operate large freighter fleets and account for approximately 40% of global air cargo traffic, they have been particularly hard hit by the current cargo market weakness," Herdman points out.

On the positive side, even though the airport infrastructure in the region is still playing catch-up, passenger traffic remains "robust" as demand for air travel continues to grow in the Asia-Pacific. China and India lead the way, along with other Southeast Asian countries such as Thailand, the Philippines and Indonesia.

Airlines are trying to sustain high load factors while controlling operating costs, he says. This comes through investment in new aircraft and products.

"Asian airlines are continuing to invest in service innovation, adding new and more fuel efficient aircraft to deliver further efficiencies while meeting the projected future growth in travel demand," he says.