Asian airlines come to Hong Kong amid a deep economic crisis and falling passenger and cargo numbers, which are making some rethink their business models.

In July, passenger traffic among Association of Asia Pacific Airlines members continued their downward trend and fell by 7.8% to 11.5 million. International freight tonne kilometres in July were down 11.4%.

"The falling numbers have resulted in greater price competition among the airlines, but this has also led to falling yields. That is why everyone is suffering," says Andrew Herdman, director-general of the AAPA.

Airlines have cut capacity to cope with the falls, but Herdman believes that not many of them went far enough. He credits the carriers with imposing cost-cutting measures that have gone some way towards ameliorating the situation. While agreeing that aircraft deliveries are necessary over the next two to three years, he cautions against "drastic measures" that prevent airlines from taking advantage when growth returns.

"They have to balance drastic measures against possible recovery. Previous crises have taught us that the growth can catch us by surprise. This appears to be a deeper and more prolonged event than before, but we must keep a close watch," he says.

There are some positive signs. The cargo market, which is dependent on Asia's export-oriented economies, bottomed out at the end of last year and there are signs of recovery. While passenger traffic is weaker, July's falls were not as deep June's 17%.

Several airports including those in Hong Kong, Malaysia and Singapore "recognise that we are partners and in this situation together", and taking steps to help airlines, he says. Others, he adds, could do more, as do many governments.

"The industry suffers from excessive taxes that are bundled on to tickets. We need more visibility from the governments about these 'stealth' taxes. Roughly 15% of a ticket charge is estimated to be taxes and surcharges and that's a burden," says Herdman.

Legacy airlines like Cathay Pacific and Singapore Airlines are wondering about the viability of their business model, with Cathay forming a team to study if the economic crisis has resulted in a structural change that forces a rethink of existing plans. This is partly due to the competition from low-cost carriers, especially in the short-haul markets. Herdman believes that both models are converging.

"Low-cost carriers like Jetstar and AirAsia are expanding into the long-haul market and offering some amenities and in-flight services. In the short-haul market, full service carriers are deploying lower-cost subsidiaries," Herdman points out.

"Regardless of what they do, the reality is that airlines are still in a crisis. Relooking at the business mode is good, but things will largely remain the same when we emerge from this. They need to focus on revenue generation and cost-cutting, which will really help them when the economic recovery comes."

Source: Flight Daily News