Economic indicators may be brighter, air traffic falls may be stabilising, but the coming months still seem likely to be as hard for Asian carriers as any since the economic crisis took hold.

When the industry metin Kuala Lumpur last October the extent to which the crisis would hit the sector was still unclear. Since the turn of the year the depth of the crisis facing airlines globally quickly became evident, as demand, particularly for premium air travel, collapsed. Initial hopes that Asia might avoid some of the worst of the crisis were dashed.

Latest traffic figures from the Association of Asia Pacific Airlines show passenger traffic down 8.5% and air freight falling 11.5% in July 2009 over the corresponding month in 2008. Yet this marks an improvement on the scale of decline seen over the first half of the year. Passenger traffic for AAPA carriers for the year to date is nearly 12% down and freight traffic more than a fifth lower.

Similarly IATA figures show Asia-Pacific passenger traffic down 7.6% in July. But while this marked the steepest decline of any region, IATA also notes this represented the sharpest improvement over the previous month's figures. "Economic growth returned during the second quarter in a number of Asian economies, to a much larger extent than elsewhere. This was likely the driver behind July's better performance," says IATA.

In part the improving traffic picture reflects the slowdown taking its toll in 2008. For example AAPA members' passenger traffic in July 2008 was itself only fractionally higher than 2007, while freight traffic had already fallen 5%. The movepositive traffic figures likely to follow in the coming months are setagainst the backdrop of the sharp traffic slump in the corresponding period last year.

"Airlines are still under enormous pressure with sharp falls in revenue as a result of lower fares levels," says AAPA director general Andrew Herdman. "Traffic reductions may be easing, but a return to growth is still some way off."Peter Harbison, executive chairman of the Centre for Asia-Pacific Aviation, agreesit is too early to talk of the bottom being reached for Asian operators and, particularly for network carriers, a difficult end to the year awaits.

"Even if we have bottomed [in the economic crisis], the reason it is not a bottom for airlines is they are still burning cash. Demand is extremely fragile and passengerlevels are being kept up bymassive discounting," he says.

"The next three months are going to be critical. It is typically the lowest volume period of the year and it is looking particularly bad this year."

Harbison says it is important to distinguish between an improving economy and the fortunes of the airline sector itself, as even if the economy and consumer spending pickup, network carriers in particular still face key problems as premium traffic has fallen further than anythingelse.

Asian network carriers have been particularly hit by the combination of the premium travel slump on top of the collapse in air freight levels. Many have reported losses. This is evident in Singapore Airlines posting its first quarterly loss since the SARS crisis five years ago, while Cathay Pacific has established a team to assess its business model and whether current changes to the industry are cyclical or structural.

Air freight is a key early economic indicator. Consequently all eyes will be on the October and Novembers figures for signs of a recovery. If this does not come to fruition, a return to happier days for airlines may be longer coming then hoped.

Harbison does at least see more cause for optimism for some of the low-cost carriers in the region. Budget brands such as AirAsia, Tiger Airways and JetStar continue to grow aggressively. He also sees some positive signs from key markets inthe region, India and China.

"India is starting to improve," says Harbison, pointing to it benefiting from sharp capacity cuts. "It generally seems to be sustaining itself pretty well."

The figures for Chinese air traffic too have been positive, at least in terms of domestic traffic. "Internationally their carriers have been cutting capacity, as have most foreign carriers [into China]," says Harbison. "In the near term it is not going to be a leader of the Asia region out of the wilderness."

Source: Flight Daily News