Kevin o'Toole World passenger markets started to right themselves last year as the upheavals of the Asian crisis finally fed out of the system. Now it is a question of mending the damage done to yields.

The last couple of years have been a testing time for the world's major airlines. Crisis in Asia two years ago threatened to send the world economy into meltdown and take traffic with it. Pessimists warned bleakly over the risk of an impending hard economic landing and another punishing down cycle for air transport.

In the event the predicted catastrophe has not surfaced either in the world economy or airline traffic. It is true that the fallout from Asia's crisis continued to cast a long shadow. The capacity that had shifted out of Asia in the wake of the 1998 collapse duly shifted elsewhere - most notably turning up to cause a punishing summer on the North Atlantic. It is also true that yields have continued their more than usually worrying slide.

Yet passenger traffic does now appear to have emerged from its bout of Asian flu in relatively good health. And if current indications hold true, the industry has ended the summer of 2000 with the supply/demand equation back in something more like harmony. If so, perhaps yields will eventually start to move upward too.

The passenger ranking

These themes are played out in the results of this year's Airline Business ranking of the top passenger airlines for 1999. This year, results are given for a full Top 200 carriers as held in the database of Air Transport Intelligence (ATI), the sister on-line service which manages the figures on behalf of this magazine. Note that the rankings are based around individual airline operations, so that the regional and charter subsidiaries of major groups are given their own listing - at least where they maintain their own separate management and identity. Also, the results wherever possible include charter as well as scheduled flying.

On the surface, the results are encouraging enough. Passenger traffic growth in 1999 was back at 5.6%, having slipped down below 4.5% for the previous two years. More promising is the fact that seat load factors started to creep up again, beating 70%.

If the operating figures are better, then the credit largely lies with a return to health among Asia-Pacific's carriers. Back in 1998 the region had barely managed better than 2% growth and seen load factors drop by a couple of points. Some startling double-digit traffic declines from South Korea and China had set the scene. Last year the traffic returned. The region posted growth rates in line with the world average.

With the obvious exceptions of the struggling Garuda Indonesia and Philippine Airlines, most of the southeast Asian majors were soaring again as they set about recapturing the ground lost over the last two years. South Korea is a case in point. Both Asiana and Korean Air were showing double digit growth, although not yet quite back to the hard numbers before the crisis.

But if 1999 was the year of Asia's recovery, then it was also the year in which South America fell from grace. Traffic had boomed in 1998, with the region's carriers turning in growth of 7% as local economies accelerated. It seemed ready to take over Asia's mantle as the world's fast-developing market.

That optimism was short lived. Growth has since faltered in the key Brazilian economy and beyond and the correction in an overheated air market has been swift.

Last year South America's carriers actually saw traffic fall by a point. Despite some strong performances in Mexico and central America, carriers further south were left struggling and in some cases sailed close to collapse. The International Air Transport Association (IATA) notes that traffic between North and South America dropped by nearly 3% as carriers on both sides of the border slammed on the brakes. Within South America itself , flying was down 8%.

Meanwhile, the US and European markets continued to move along steadily with few signs of imminent downturn. Growth rates in both regions were admittedly a touch down on the gangbuster year of 1998, but still high above the long-term average. With economies booming on either shore, it was not surprising that the North Atlantic led the way with growth rates over 10%.

Yields decline

Yet that traffic came at a price. Looking behind the headline figures shows the damage to yields that resulted from attempting to fill too many seats. IATA estimates that yields across all international scheduled passenger services again fell by more than 4% in 1999 compared with a long-term average decline of closer to 2.5%.

The US majors collectively held the slippage to a modest 1.2%, but they were among the fortunate. In Europe, those that had added seat capacity the fastest, especially on an overheated transatlantic market, also reaped heavy yield declines. Lufthansa, Swissair and Sabena registered falls in the 5-7% range. British Airways and KLM who had led with cuts to North Atlantic capacity managed to limit the damage to yields, but suffered nevertheless. Perhaps the most positive story came from a resurgent Air France. Overall, however, the Association of European Airlines (AEA) estimates a punishing 8.1% drop in passenger yields across international services.

In Asia too, the news on yields was more patchy than the overall recovery might suggest. Nor was it helped by the continuing weakness of local currencies, (the Japanese yen amongst them). But almost none of the yield declines were on the scale of a year ago and those such as Singapore Airlines were showing healthy gains as they led the region to recovery. Yields for the major Chinese carriers also received a boost when industry regulator the Civil Aviation Administration of China (CAAC) banned ticket discounting and set about restoring some order to the country's oversubscribed air transport sector.


With much of the recent excitement now over, the outlook is beginning to look a little more settled for the year ahead. Scheduled passenger forecasts from ICAO suggest that traffic will indeed remain close to the 6% mark over this year and next before slipping a little in 2002 as the world economy finally starts to weaken. The Asia-Pacific region is expected to take up the lead after its period in the wilderness - once again recording growth rates above 7%. South America too is due to recover some of its poise after last year's desolation.

Certainly the North Atlantic is back in balance, with indicators of rising yields among the European carriers as demand outstrips seat supply. The main storm cloud on the horizon centres on a downturn in the US economy after the longest run of growth in memory. The current guess, however, is that it will be a soft rather than hard landing. If and when it does come, the world's major carriers appear to be better prepared for the downturn than in cycles past. That, of course, relies on the current prudence holding firm.

Source: Airline Business