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Heightened competition and high fuel costs pressure airline profitability

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ETW StaffMumbai

Delegates gathering for this year’s Association of Asia Pacific Airlines (AAPA) Assembly of Presidents meeting in Hong Kong are in a positive frame of mind, as innovative Asia Pacific airlines continue to forge ahead in a post recessionary world, with the region’s carriers having played a pivotal role in the reshaping of the industry over the past five years.

Heightened competition from within and outside the region and persistently high fuel costs continue to exert pressure on Asia Pacific carrier profitability, but regional economic growth and strong passenger demand create cause for overall optimism.

With its reputation for innovation further strengthened through strategic realignments and multi-faceted airline offerings, the Asia Pacific air transport industry has proved itself to be extremely resilient in recent years. Both network and low cost carriers, along with other airline business models have widened offerings to the region’s travelling public, with a cross fertilisation of ideas amongst competitors with different business models significantly narrowing many of the earlier product and pricing differentials. Indeed, the region’s leading network carriers continue to invest heavily in improvements to premium class cabins, whilst low cost carriers are now launching long-haul services with some premium class offerings at extremely competitive prices.

Although there are some signs that the worst of the slump in air cargo demand in recent years is now over, Asia Pacific carriers with major dedicated freighter fleets look forward to the growth in world trade returning to pre-recessionary levels in order to achieve meaningful returns on their investments in the latest generation freighter aircraft.

Whilst the long-term outlook for air freight remains encouraging, profitability for Asian carriers with major freighter fleets will continue to be  negatively impacted by the current overhang of excess freighter capacity.

AAPA has said it does not see a fundamental shift in the commitment to use air freight to ship high value and time-sensitive goods. The current situation is simply a reflection of sluggish international trade flows, which are similarly affecting the maritime freight industry.

Andrew Herdman, director general, AAPA, said, “With international passenger traffic growing steadily and the world economy gradually pulling out of recession, Asia Pacific carriers have good reason to be optimistic. Having tightly controlled costs and invested heavily in the latest generation of fuel efficient aircraft in recent years, airlines from the region are well equipped to compete vigorously amongst themselves and with carriers from outside the region. Achieving a broader recovery in the air freight business of Asian carriers is a more prolonged process, which will very much depend on world trade growth rates returning to more normal levels.”

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