Thursday, July 24, 2008

Concern over falling load factors for Asian airlines

Confirming predictions from earlier this year, airlines in the Asia Pacific are experiencing declining load factors, which have been attributed to increased travel costs and economic downturn.

Chinese carriers have reported concerning declines in load factors last month, with the slowdown preceding the Sichuan earthquake. The primary reason for the decline is considered to be the tougher security measures which are protecting the Olympics.

But despite these factors, it is evident that the Chinese economy is slowing, and with it, demand for travel. The recent increases in fuel surcharges have led to a 50 percent rise in the past month, and this will cause further difficulty in the sector.

The recent cost-cutting strategies of China Southern, such as slashing executive salaries, are key examples of the troubling situation that is emerging, according to the Centre for Asia Pacific Aviation.

Load factor for Singapore Airlines has similarly declined, falling 3.2 ppts to 79.2 percent, after recently expanding capacity by 9.5 percent.

Despite the downturn in the area, Cathay Pacific recorded a 16 percent year on year increase in June, taking their growth for the year to date to 14.3 percent.

“We have added a lot of capacity since last year, particularly to India, Australia and North America, so for passenger growth to fall only marginally behind capacity growth is a creditable performance,” a Cathay spokesman commented.

Whilst recognising the impressive growth of the Hong Kong based airline, the Centre for Asia Pacific Aviation noted that their growth could be occurring at the expense of yield, while fuel costs continue to rise.

In a recent statement, the Association of Asia Pacific Airlines expressed concern regarding the cost of travel, although air traffic in the area was remaining relatively stable, with Director General Andrew Herdman warning of “worrying signs that the global economy may be reaching a tipping point.”

He pictured a future where astronomical oil prices were “the new normal,” claiming that such a situation would have “far-reaching implications for the structure of the industry.”

The effect of such costs becoming the norm would also impact airports and other aviation service providers.

His motive was not to incite panic, but to encourage the industry to co-operate to improve efficiency, and he urged carriers to recognise that they would be required to make some tough decisions in the near future.

Some of the strategic decisions which may be required of airlines include the cutting back of unprofitable routes, retiring of older equipment, reviewing staffing levels and maximising the use of newer, more fuel-efficient aircraft.

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