Asia-Pacific airlines are looking towards 2008 with cautious optimism after healthy financial performances in 2007.
Fuel prices may have been hitting new highs but as major Asia-Pacific carriers met at the recent Association of Asia-Pacific Airlines annual gathering in November, few dire concerns were expressed about 2008 earnings. As the association said in its 2008 outlook: "Several years of strong and sustained global economic growth, the recent turmoil in the financial markets and related tightening of credit conditions suggest some caution on prospects for the world economy in 2008. Nevertheless, the International Monetary Fund is still forecasting global growth of 5% next year, and the outlook for the Asia-Pacific region remains generally positive."
AAPA member airlines themselves are generally positive about 2008, although they are expressing concern about high fuel prices. Some are also concerned about potential overcapacity.
Strong bookings
As Singapore Airlines said in a recent earnings report: "While advance bookings are holding up, slowing economic growth sparked by tight credit markets and increasing volatility in financial markets casts a cloud of uncertainty over the strong revenue environment."
Elsewhere, Malaysia Airlines is looking to 2008 with confidence and says it is "experiencing very strong bookings". The carrier is in the middle of a restructuring that has produced results far earlier than anticipated. Looking forward, it is maintaining a positive outlook but says its performance "will be dampened by the impact of higher oil prices".
The region's emerging low-cost carriers are also recording more positive earnings. AirAsia recently reported strong results while Singapore's Tiger Airways and Jetstar Asia are thought to have sharply reduced their losses over the past year. Philippine carrier Cebu Pacific has meanwhile been going from strength to strength while another player to watch, privately held Lion Air of Indonesia, is talking of major expansion.
Front-end demand remained strong in 2007 for full-service airlines, meanwhile, and load factors were high. Cumulatively, AAPA members recorded a 77.2% average passenger load factor from international scheduled services between January and October, which represented a 1.8 point improvement year on year. RPKs rose 4.7% overall during the period. Freight load factor was 0.5 percentage points weaker over the same period, however, at 66.2%, while freight tonne kilometres increased 3.1%. The hope is that passenger load factors remain high in 2008 and freight load factors continue improving.
As Cathay Pacific Airways said in a recent monthly traffic report: "Front-end business, especially on long-haul routes, remained strong, as it has throughout 2007. Capacity is set to climb further in the coming months, with more new aircraft and further flight enhancements, but we expect passenger demand to remain high."
It added of cargo operations that healthy tonnage growth has been boosted "by demand out of mainland China and heavy traffic on routes such as Australia and India". It expected a "big pickup" in seasonal peak demand, which could bode well for 2008, "though Northeast Asia remains a concern with yields still under pressure".
Some airlines have been upgrading earnings forecasts on the back of better than expected financial reports, such as Japan Airlines which recently boosted its operating profit forecast for the year to March after an improved fiscal third quarter.
In India, meanwhile, airlines are hoping overcapacity problems that have hit the sector amid market share wars will ease further in 2008, as consolidation takes hold. For example, Air India recently merged with fellow state-owned carrier Indian while Jet Airways acquired the former Air Sahara and Kingfisher Airlines parent UB Group has become the largest single shareholder in Air Deccan.
In China, 2007 saw most airlines improving on their financial performances and the outlook is cautiously upbeat about further improvement in 2008.
South of the equator, Air New Zealand and Qantas Airways are also expressing overall optimism about 2008. Qantas says demand has been "very strong" and it expects a 30% pretax profit rise for the year to June 2008 - barring unexpected shocks.
Source: Airline Business
