Asia-Pacific airline executives many well remember 1998 as the year of red ink. And for the region as a whole, it was certainly the toughest in recent memory. But as the year-end financial figures come in, it becomes clear that the gloom has not been evenly spread.
Around half of the major carriers managed to end the year in the black, including Japan Airlines (JAL)and Korean Air, turning back from last year's massive group losses. That left the industry as a whole showing a tentative net profit of close to $750 million, up by some $500 million. But the apparent improvement was flattered by the lack of write-offs, which so much damaged results in the 1997 financial year, and by some extraordinary gains from asset sales. Looking deeper at the results shows that operating margins were virtually halved.
China was the hardest hit. Its carriers collectively bled nearly $750 million, including $120 million in net losses from previous stars China Southern and China Eastern. Australasia's carriers have fared the best. Although their financial years do not end until June, results at the half-year stage were looking robust.
Several trends, however, begin to emerge from this mix of Asia-Pacific results. First, traffic has recovered faster than yield, as aircraft have been filled from the back by carriers struggling with excess capacity. Yield has been hurt further by fare discounting, especially in China and Japan.
Second, airline recovery generally mirrored economic recovery. Thus, Singapore Airlines remained strong and Thai Airways made a comeback. The robust Australian economy helps explain a strong half-year showings from Qantas and Ansett. It also explains why some airlines did poorly, especially Malaysia Airlines, Cathay Pacific, and Vietnam Airlines.
Yet, several airlines seemed out of step with their national economies. Garuda Indonesia claims to have fared better than the Indonesian economy as a whole, although full accounts have yet to materialise. Struggling Philippine Airlines naturally fared worse, and neither South Korean carrier seemed to exploit their country's recovery. Korean Air showed profits, but due to aircraft sales, and Asiana stayed in the red despite halving its debts.
Taiwan was also an anomaly. Its economy escaped the worst of the region's ravages, but airline results were lacklustre. China Airlines sank into the red and EVA Airways almost did. Both depended heavily on regional traffic.
Conversely, Japan's stagnant economy has only begun to stir, yet airline results covered a spectrum. JAL at last showed a significant profit, but Japan Air System managed little better than breakeven and All Nippon Airways (ANA) showed its first operating loss since 1982. Such differences may reflect how far each carrier had progressed in restructuring and how much it depended on the increasingly competitive domestic market, which still dominates ANA's business.
Source: Airline Business
