Asia-Pacific carriers are producing solid results but there are increasing concerns about the softening freight market.
Singapore Airlines remained one of the region's star performers, reporting a more than 70% jump in net profit for the year to March and setting a new earnings record in the process. The net result included gains from the sale of assets and a tax writeback, but at operating level profit was also up, by 8%, on the back of a particularly strong showing from core airline operations.
Operating revenue increased nearly 9% to a record high and the increase was the same as the growth in expenditure, which was led by higher fuel costs. Excluding fuel, expenditure increased at a far slower rate than revenue.
However, subsidiary SIA Cargo suffered a loss at operating level as breakeven load factor increased due to higher fuel costs and lower yield. This has caused concern for the airline, which says "the outlook for cargo remains challenging".
"Cargo yields will continue to be under pressure with more freighter capacity," it adds.
This concern is shared by other Asian freight carriers, which are also under pressure as growth in traffic has been slowing while capacity has increased.
Freight fall
The Association of Asia Pacific Airlines, which represents 17 airlines, says cumulative freight load factor from its members' international services fell 1.6 points in the January-April period, to 65% from 66.7%. Freight tonne kilometres increased 1.7% but available freight tonne kilometres rose 4.3%.
Director general Andrew Herdman says passenger traffic growth is encouraging but "air cargo demand ... has been disappointing".
Airlines are hoping this is just a temporary blip, as most say demand for air travel remains strong with no immediate sign of a slowdown.
Another major carrier that has been outperforming its peers is All Nippon Airways, which reported a better-than-expected net profit for the financial year on strong travel demand and record revenues.
Net profit increased 22% and operating profit rose 3.8% to a record high. Operating revenue increased 8.8% while operating costs were up 9.2%.
ANA saw strong demand for travel with Japan seeing healthy economic conditions. Restructuring efforts have also been paying off. This year "strong demand for air transportation is expected in line with continued economic recovery in Japan", it says.
It remained a somewhat different story for Japan Airlines, which again suffered a net loss for the year to March. However, a full-year operating profit was recorded, representing a turnaround from the previous financial year, and net losses were reduced.
JAL is also more positive in its outlook, noting that operating revenues were up more than expected last year and both international and domestic demand has been increasing. This fiscal year it expects operating profit to increase and a net profit to be recorded.
Chinese gains
There have also been signs of improvement in China, where for the 2006 calendar year Air China and China Southern Airlines were profitable but China Eastern Airlines recorded steeper losses.
For the first quarter, Air China recorded earnings growth on a strong increase in demand. China Eastern and China Southern remained in the red but they suffered smaller losses on significantly increased sales.
In South Korea, Asiana Airlines' net profit fell 67% despite an 8% increase in sales, primarily as a result of reduced foreign exchange gains. At Korean Air outbound cargo shipments slowed, in part because of the strengthening of the local currency, and freight revenue rose just 0.6%.
Things were mixed in Taiwan, with EVA Air suffering first-quarter losses at both net and operating levels. China Airlines suffered a loss at net level but a sharp increase in operating profit. Taiwan's airlines have been hit by a drop in domestic demand due to competition from high-speed train services. They also rely heavily on cargo operations and exports have been slowing.
In Thailand, national carrier Thai Airways International reported weaker results for its fiscal second-quarter to March, with net profit down nearly a third despite 8% revenue growth. Foreign exchange gains and rising costs related to operations at Bangkok's new Suvarnabhumi airport were blamed.
But in Australia things are more positive for Qantas Airways, which had bullish expectations for its earnings for the financial year to June. It expects profits will come in at the high end of analysts' forecasts, which means it
s pretax earnings increasing around 40% over 2005/6 and by around 30% more in 2007/8. This bullish outlook was used in part by those opposed to a private equity group's recently failed takeover bid, which they felt valued the carrier at too low a price.
Malaysia Airlines has also sharply increased its earnings forecast for the calendar year after recording far better-than-expected profits in the first quarter.
And full-service airlines are not the only ones recording gains. Malaysian low-cost airline group AirAsia recorded strong growth in its fiscal third quarter to March on a solid rise in demand and improvement in yield. Group chief executive Tony Fernandes says that competitor airlines are finally "behaving" and that the industry is operating in a more "conducive and rational competitive" manner.
Source: Airline Business
