Over the last few months much attention has been focussed on the current blood bath taking place on the North Atlantic. The conclusion very early on from the analysis was that there was not only too much capacity but that it was likely to be very painful for the players. Recent results have not disappointed.
Although the first signs of more rational behaviour have begun to appear on the horizon, with what would appear to be a better capacity environment emerging next year, the legacy of what has been more than just a moment of madness will be with us for some time. It is true that whilst yields are falling there are generally falling at a slower pace but again this should hardly be a surprise. In part, it simply reflects the statistical effect of sharp falls from the back end of last year.
But what of the Asia?It was after all the region generally credited with causing the disturbance in the first place and the epicentre of the capacity shifts that has caused the distortion. As was suggested in the analysis last month, we believe that there has also been a certain amount of "posturing for position across the Atlantic" as alliance partners jockey for position ahead of possible revenue sharing deals. Yet the main reason for the significant excess capacity has been the re-deployment of aircraft originally destined for Asia.
Whilst the relationship between economic growth and traffic is more complex than the traditional multiplier of 2-2.5 suggests - more of which in later issues - an improving economy is a necessary but clearly not a sufficient condition for the restoration of health of for airlines within a region.
There are, however, what appear to be increasingly encouraging signs of better times ahead for a number of the Asian economies and with the possible exception of Japan where recovery remains patchy, other of the region's key economies appear reasonably soundly based.
Against this background, it is important not only to focus too closely on the near-term trends of planned capacity. There are longer games in hand. Against this background comes the application by Singapore Airlines (SIA)to fly transatlantic out of the UK, giving. If as expected SIAannounces its alliance plans this month, that stands to give Star an additional presence on transatlantic routes out of London. It will be interesting to see how the regulators deal with this if or when they come to re-examine the slot conditions attached to the British Airways and American Airlines.Another longer term issue is of course the planned deliveries to the airlines in the region as well as the propensity for a "shift back" in capacity.
Looking behind the current OAGflight schedule statistics shows a pattern on the European-South East Asian segment: The big European players continue to reduce seats, while the Asian carriers raise them. On Europe-North Asia routes the picture is a little confused. Whilst Lufthansa is increasing capacity here by nearly a third, most of the rest of the majors are reporting no change or in the case of BA an 18% fall.
The North American- Asian picture is confused too, but here more as a result of the new Air Service Agreement with Japan.
Raking a longer term perspective in terms of capacity and deliveries SIAhas deferred some Boeing 777 deliveries into 2001 and beyond. Malaysian Airlines has also been adjusting its delivery requirements and Thai has few deliveries to come. All this suggests a better overall environment for capacity.
These are all important elements in the restoration of a better balance between supply and demand. However, the results of this in terms of a financial improvement are still some time in the future. Then again the world could have seen another change of heart by then, despite the recent pain.Ên
Source: Airline Business
