The annual meeting of Asia-Pacific airline presidents produced an upbeat mood despite the fall-out from the bombing in Bali

When Asia-Pacific's airline leaders met in November last year, the terrorism attacks of 11 September were not so much a memory as a fact of life. Still reeling from the shock of the attacks, the region's carriers were forced to watch as passenger load factors and yields nose-dived as insurance and security costs increased.

Asked then when he thought the situation might improve, Cathay Pacific Airways chief David Turnbull's caustic response captured the mood: "No one could possibly know, but certainly no time soon." How the mood has changed.

As the heads of the Association of Asia-Pacific Airlines (AAPA) again gathered for their November general assembly on the Philippine resort island of Cebu, the talk was not of downturn but recovery. The annual jamboree had barely begun when AAPA director-general Richard Stirland pronounced: "Airlines in this part of the world are doing extremely well." While Europe's flag carriers rework their business models, and the US majors focus attention on determining which of their number is next in line for bankruptcy protection, Asia's mainline carriers are enjoying a strong return to financial health.

Calling the past 12 months an "arduous odyssey", Stirland hailed the resilience and skill of the region's airline management. The remarkable reversal of fortune suggests that he may have a point. Cathay Pacific is an example, having seen a rise in profits even as revenues have declined.

Philippine Airlines (PAL), playing host to the assembly, has also put on an impressive display of managing its way out of disaster. When the general assembly last met on its home turf in Manila in 1999, the Philippine flag carrier did not even show up. It had barely struggled back into the air after finding itself grounded and bankrupt a year earlier in the wake of the Asian financial crisis.

PAL has since embarked on a painful programme of down-sizing that saw it reduce its fleet, network and staff numbers by around 45%. It was well on the road to profitability as a leaner carrier when 11 September struck. But although it lost $44 million in the two months following the attacks, PAL still managed to produce a small profit in December.

PAL senior vice-president and chief financial officer Andrew Huang says the carrier is performing relatively well and likely to return to profit this year. Some "very conservative" estimates call for a net profit for the year to March 2003 of "about $15 million, plus or minus $3 million", he says. For the first half to the end of September PAL's profit came in at nearly $20 million, but the carrier typically has some of its weakest operational months in the second half, notes Huang.

The carrier is generally upbeat, however, and is talking about taking on an additional widebody aircraft so it can add frequencies to its over-subscribed flights from Manila to Los Angeles and San Francisco. "We are looking at additional capacity right now," Huang says.

Asian independence

But it is not to the transpacific routes, once a cornerstone of profitability, that the Asia-Pacific carriers are looking in the drive to recovery. Services across the Pacific continue to suffer from disappointing passenger numbers and even worse yields. Flights connecting the region to Europe have performed better - with the Asian-Pacific airlines outperforming their European counterparts. But the big engine powering the results has been passenger demand within Asia-Pacific itself. Traffic has improved almost everywhere within the region, although the spluttering Japanese economy to the north and the failure of Ansett Australia to the south have dented the record.

"Asia now has its own dynamic," says Stirland, warming to a familiar theme about the emergence of an intra-Asian economy, capable of independent growth regardless of faltering Western ones. Stirland issues a reminder that, while there is still "gloom and doom" hanging over the airline industry in some regions, "it is by no means universal throughout the world".

The horizon, however, is hardly free of clouds. Future growth for many of the major Asian carriers will still demand that flights to the USA regain some of their lost lustre. On this score, there is perhaps cause for optimism coming from the cargo market, an historic bellwether for overall Asian economic vitality. Cargo traffic to North America has already posted unexpected gains.

But more ominous is the threat of further violence. No one doubts a war with Iraq would have dire consequences on fuel prices and traffic levels, but closer to home is perhaps an even greater worry. Stirland does not appear too concerned, labelling October's terrorist bomb blasts in Bali as an isolated incident representing no long-term threat to Asia's airlines. "People haven't associated it with a danger of flying. They have merely cut back on travelling to Bali," says Stirland. "Other destinations in South-East Asia appear to be unaffected."

The evidence to date, however, is less heartening. Garuda, Indonesia's national airline, has watched its traffic plummet, leading to the necessary decimation of its international schedule. This has caused the carrier to pull out of Frankfurt and other such destinations.

Travel advisories

Similarly, PAL says travel advisories made by some governments for South-East Asia after the Bali bombing have harmed its bookings, especially on the usually lucrative Japan-Cebu routes. As PAL's Huang says: "This November alone there were cancellations because of the travel advisory that came out of Japan."

And PAL is not unique. Zuji, the on-line booking platform owned by major Asian carriers, says that until October it had been performing better than anticipated in the months following its mid-2002 launch. But in the wake of the bombing bookings fell flat. Looking further ahead, several other airline delegates privately admitted nervousness about the havoc further acts of terrorism would play with regional business.

But the situation is sufficiently happy for the region's carriers that no problem appears insurmountable. PAL president Avelino Zapanta is looking on the bright side of the travel advisories, noting that 80% of his carrier's traffic has not been affected. But although most of AAPA's members may have good cause for optimism as they look to the New Year, none is taking too much for granted. As Zapanta says: "We're doing well now, but anything can happen." n


Source: Airline Business