Last year further underlined the profitability of the fast-growing Asia-Pacific airline sector. At a net and operating level, Asian carriers in the top 150 biggest airlines generated higher profits than any other region. Of the most profitable 10 carriers by net profit, half were from Asia-Pacific.
It continues the rapid growth in the region which has seen Asia-Pacific carriers move sharply up the airline rankings. Revenues for Asia-Pacific among the top 150 operators were just shy of $200 billion, second only to North America. Ten of the 20 biggest airlines in 2011 by revenue were from Asia. This compares with just five Asian carrier groups 10 years ago. This includes three mainland Chinese carriers. The top Chinese mainland operators ten years ago ranked 35th, 39th and 43rd respectively in 2012, underlining the dynamic growth of China's airline sector.
While still the most profitable of the regions, the Asia-Pacific sector also saw profits fall on 2010 highs. Carriers could not escape the pain of rising fuel which hit all airlines in 2011, while Asia Pacific operators were harder hit than many others by the continued weak air freight market because of their relatively higher exposure to air cargo activities.
The likes of Thai Airways, Malaysia Airlines and Korean Air all ended the year in the red; losses piled up in India's struggling airline market which continues to fail to fulfil its potential; and operating profits were even reined in for fast-growing Chinese carriers.
IATA, in its most recent forecast for Asia-Pacific carriers, scaled back its profits expectations for the region this year to $2 billion. While that figure would still make it the most profitable of the regions, it is well under the near $5 billion profit Asia-Pacific carriers made last year.
IATA notes the region's carriers have so far seen little sign of benefiting from the recent modest improvement in cargo, while also citing the slowing of the key Chinese and Indian economies as factors for the slow-growth environment.
Yet the long-term potential is undoubted and it is against this backdrop that some of the most dynamic activity in the industry is taking place in Asia. A string of new airline projects and initiatives have been set in motion over the last 18 month as airlines jockey for position in moves which could change the industry over the long term.
Top-tier airlines such as Singapore Airlines, Qantas Airways and Cathay Pacific retain their lead, but could face a rather gloomy near-term outlook. Partly, this is because of the higher fuel prices and the fact that the premium market has not recovered as well as they thought it would after the 2008 financial crisis.
Star Alliance carrier Singapore Airlines had a rare quarterly loss in the three months to 31 March, although it did report a full-year profit, while Cathay and Qantas have issued profit warnings and said that the near-term outlook was gloomy. The challenge for them, however, is that they have to restructure their operations while fighting on several fronts to fend off competition.
In the short-haul market, this comes from growing low-cost carriers that have been more dominant in Southeast Asia but are increasingly making inroads in their white spot, Northeast Asia. This started with Malaysia's AirAsia, which gradually set up affiliates in Indonesia, Thailand and the Philippines and will soon do so in Japan. Singapore's Tiger Airways, which is one third owned by Singapore Airlines, is following that model with Australian, Indonesian and Filipino operations. More could follow for both.
Qantas's main Jetstar subsidiary is based in Australia, but there are Jetstar affiliates across the region in Singapore, Vietnam and Japan. Qantas also plans to set up a Jetstar-branded airline in Hong Kong as a joint venture with China Eastern Airlines, potentially giving it access into the highly lucrative Chinese market. Spring Airlines, the sole Chinese low-cost carrier, plans to set up a Japanese affiliate within the next year.
Full-service carriers must also compete with the growing long-haul low-cost phenomenon, which could see four participants from Southeast Asia itself in 2013 - and that, too, in a market segment that has not yet proven if it can deliver profit on a sustainable basis. AirAsia was again the pioneer here with its AirAsia X affiliate.
Jetstar had been offering these with Airbus A330s from Australia to some limited markets, and Singapore-based Jetstar Asia has moved into the market as well. Philippine carrier Cebu Pacific has also announced that it will begin long-haul services in 2013, but the most intriguing entrant into this segment is Singapore Airlines itself.
RETURN TO LEISURE
The Star Alliance carrier's Scoot subsidiary began operations in June with flights to Australia, and will soon fly to Taipei, Tokyo and Tianjin. SIA's plan is to use Scoot to return to the leisure market, from which it has largely withdrawn during the past few years. Scoot, as well as AirAsia X, Jetstar and Cebu Pacific, aim squarely at a growing group of passengers from Australia and Southeast Asia who have more disposable income than the previous generation, and do not mind sacrificing comfort for cost.
The tier two full-service carriers, however, are responding. Airlines such as Garuda Indonesia, Thai Airways, Malaysia Airlines, and the three main Chinese airlines have also been restructuring their product and improving their network - partly in response to the low-cost carriers, but also to get some of the traffic that now goes to the bigger names. They may not get to the same level as SIA, Cathay and Qantas in the full-service segment - but they could get close enough to grab some passengers and make a dent.
At the same time, they are also making their own inroads into the low-cost market. Garuda is busy transforming its Citilink subsidiary into a proper low-cost carrier in response to the growing presence of Indonesian rival Lion Air. And the latter, which has made major inroads into the domestic market, plans to set up a full-service subsidiary. Lion will launch Batik Air next year with Boeing 737-900ERs, and has also signed a commitment to add Boeing 787s for the venture.
Thai Airways meanwhile has started up a full-service regional carrier, Thai Smile, to serve the premium market. The carrier also plans to set up a low-cost carrier as part of a joint venture with Nok Air.
big in japan
In Northeast Asia, Japan Airlines and All Nippon Airways are to push into the low-cost market via joint ventures with Jetstar and AirAsia respectively. It is still not clear when, or if, Jetstar Hong Kong will get the go-ahead, but one or two low-cost airlines could also emerge in Taiwan in the next year and start services into China. Yet mainland Chinese carriers, by and large, remain protected. This is important for them, especially since many of their domestic operations remain low-fare full-service airlines. But there is growing speculation that one or two of Air China, China Eastern Airlines and China Southern Airlines could set up a proper low-cost carrier to have the first-mover advantage. And industry sources say that the likes of AirAsia and Jetstar will find it hard to plant their flag in China until that has been done.
Source: Air Transport Intelligence news
