Asia-Pacific airline earnings have been universally depressing of late and no more so than in China and India - the powerhouse economies that many thought would help the region avoid the sort of industry downturn that appears likely in other parts of the world.
China and India have seen their aviation markets boom in recent years and analysts and airlines had been predicting for some time that when the next downturn came they would help cushion the wider Asia-Pacific region from any severe troubles.
But both markets have been seeing their passenger traffic growth fall sharply after years of strong double-digit growth, leaving some to wonder if the growth miracle was just a bubble. Most think not, however, and expectations are that above-average growth will return. But for their respective airlines the financial situation is far from good.
Chinese carriers have been suffering since around the middle of this year from declining demand, which came after years of robust growth. This was initially seen as the result of natural disasters in some parts of the country which pushed down demand. But later stringent visa restrictions for foreign nationals introduced ahead of the August Olympic Games in Beijing had a greater impact on travel demand.
As a result all of China's publicly traded airlines - Air China, China Eastern, China Southern, Hainan and Shanghai Airlines - fell badly into the red in the most recent quarter and the full-year outlook is bleak. Some analysts believe demand may not return to previously seen levels until at least the second half of 2009.
Civil Aviation Administration of China traffic statistics for September showed the country's airlines carried 16.4 million passengers that month, or 0.7% more than in September last year.
It was the first positive month since May, when demand fell 1.1%, followed by a 3.8% drop in June, a 1.6% drop in July and a 12.4% drop in August. But the slight recovery in September was only the result of domestic demand returning, as international traffic was still badly depressed.
For the first nine months of the year Chinese airlines carried 141.3 million passengers, or just 1.7% more than in the same period last year. This is far below expectations from the beginning of the year, when the CAAC said it expected full-year passenger traffic growth of 14%.
A similar situation has been seen in India but for different reasons. Airlines there have been fighting for market share and had been adding capacity at aggressive rates. Most have been seeing their cash reserves dwindle as a result, and with fuel costs hitting them particularly hard they have been forced to increase fares. This has had a direct impact on travel demand as India is a particularly price-sensitive market.
In September, the number of passengers carried on domestic routes plunged 19%, according to Ministry of Civil Aviation statistics. It was the fourth consecutive month of declining demand after a drop of 17% in August, 10% in July and 4% in June.
INDIAN LOSSES
The country's airlines have been suffering financially as a result. Market leader Jet Airways recently reported a fiscal second-quarter loss of nearly $80 million, compared to a profit for the same period last year. Number two player Kingfisher Airlines reported a net loss of more than $130 million for the first half. State-owned Air India is also seeing losses widen sharply and although it does not publish accounts in a timely manner the civil aviation minister was recently quoted as saying losses could exceed $600 million this financial year. IATA has said India's airlines may collectively lose $1.5 billion this year.
Capacity cuts are now being pushed through in many other Asian markets. Singapore Airlines, for example, says it expects to reduce ASK growth plans for 2009 to just 1% and it may even park aircraft in the desert.
In Japan, both All Nippon Airways and Japan Airlines have slashed earnings forecasts for the year after tougher first-half performances. Difficult times are also being seen for airlines in South Korea, Taiwan and almost everywhere else.
Report by Nicholas Ionides Analysis by Antonio Panariello of Flight Insight
Source: Airline Business
