Asia's halcyon days of high yields look set to end in the conflagration of fare wars as the pressure on prices mounts from four directions.

Seven months of flat or falling loads are the main culprit. Traffic is still growing at an annual 8 or 9 per cent, but capacity of the Orient Airlines Association's carriers has expanded about 12 per cent, pushing aggregate loads down to 65.7 per cent, nearly 2 per cent below a year ago.

Richard Stirland, OAA director-general, says most Asian carriers are matching growth and demand, but two or three have boosted capacity 20 per cent and failed to fill extra seats. This 'fairly quickly leads to price wars and reduced profitability across the whole region,' he warns.

The battle for market share is also pushing prices downwards. Malaysia Airlines is cutting European and US fares in an effort to woo passengers from Singapore Airlines. Philippine Airlines is slicing Middle East fares in a struggle to retain expatriate worker traffic since Saudia boosted flight frequencies.

Currency fluctuations have also caused chronic fare cuts. Now that the yen has dropped back below 90 to the dollar, price cutting in the Japanese market has slowed, but analysts say Singapore-based fares could be next. A 5 per cent appreciation in the Singapore dollar could spark another round of discounts.

Finally, the recent dissolution of the Intra-Orient Marketing Programme has eliminated the threat of sanctions against anyone selling below minimum fares. Criticism of price-fixing and reluctance by airlines to enforce it caused the programme's demise.

David Knibb

Source: Airline Business