Asian airlines are taking a cautious approach to planning for 2020 as pressure on earnings increases, according to the region’s major industry group.
Many Asia-Pacific carriers have been reporting diminishing profits or wider losses this year. While the region will likely still see a collective profit in 2019, it will be down significantly from the previous year, Association of Asia Pacific Airlines (AAPA) director general Andrew Herdman said. This aligns with forecasts from IATA, which predicts that Asia-Pacific airline profits will decline to $6 billion in 2019, versus $7.7 billion in 2018.
The Asia-Pacific region could see the largest drop in collective profit this year compared to other regions, Herdman told ATW. Profits and margins were already being “squeezed” last year, and are under further pressure this year, he said.
Even some the strongest Asia-Pacific airlines, such as Qantas and the Japanese majors, have seen profits drop this year. However, the situation is much more troubling for those airlines still in the middle of restructuring programs. If they were having difficulties when the industry was booming, it will be even harder for them in a slow-growth period, Herdman said.
Passenger demand growth has been easing this year. AAPA said international traffic for Asia-Pacific carriers was up 4.2% year-over-year for the nine months through September, compared to a growth rate of more than 7% at the same time last year. So while demand is still growing, “the rate is moderating,” Herdman said.
Average load factor has declined slightly, but at 81% is still at a historically high level, he said. This indicates the industry has been maintaining capacity discipline. The uncertain outlook has caused airline leaders to be cautious regarding capacity plans for the first part of 2020, he said.
Part of the reason for the slowing demand growth is that international trade disputes are starting to affect consumer confidence. At the beginning of this year, the disputes were mainly perceived to be hurting businesses in logistics and supply chains, Herdman said. However, in the second half of 2019 it also influenced consumer confidence, and now the airline industry is seeing the first signs of this eating into air travel demand.
The picture is far bleaker for the cargo market. The decline in the global freight industry has hit Asian airlines particularly hard, as many have a high exposure to the cargo sector, Herdman said. This has caused a cutback in freighter operations.
Despite the softening market there has only been one major airline failure in Asia-Pacific this year, India’s Jet Airways. In comparison, a number of European airlines have collapsed. Asia is not yet at the point where more airlines will fail, Herdman said. He pointed out that there are startups emerging and carriers with ambitious growth plans, indicating “there is still some optimism” in the region.
Regarding passenger demand, the major question is whether the slowing expansion represents a temporary dip or the end of a long period of “above-trend growth,” Herdman said. He noted that whatever the short-term outlook, both Boeing and Airbus project that medium- and long-term growth prospects remain strong in Asia.
Source : atwonline.com