The annual meeting of Asia-Pacific airline chief executives picked up where the previous year's left off, with discussion on shocks, growth and a debate on the likelihood of low-cost incursion.
At last year's Association of Asia-Pacific Airlines (AAPA) meeting in the Philippines, the assembled carrier heads were still discussing the Bali bombings and their disastrous effects on traffic figures. Although SARS, this year's catastrophe, is vastly different in nature, the key point remained the same: the remarkable speed at which its effects were overcome. This is evidenced by traffic recovering months ahead of analyst forecasts, even if yields have lagged.
Outgoing AAPA president Richard Stirland describes the growth of the sector as inexorable, saying that: "GDP growth, increasing appetite for travel and continuing export by air all make for a bright future for the region's airlines."
The focal point of the meeting, however, was the possible genuine emergence in the region of low-cost airlines. Although the topic was discussed at last year's meeting, then it had an almost academic feel. As managing director of the Centre for Asia-Pacific Aviation Peter Harbison says: "A year ago, no one thought low-cost was an issue; that's certainly not the case today."
Harbison has predicted meaningful entrance on to the scene from the outset, often in virtual isolation. So he perhaps feels vindicated by the events of the recent past, which have featured the continued growth of Malaysia-based low-fares carrier Air Asia and Australia's Virgin Blue, as well as the formation or investigation of low-cost subsidiaries at Qantas, Thai Airways and Singapore Airlines. An independent Singapore-based entity - ValuAir - also joined the fray, leasing two A320s that will arrive next spring.
Harbison says the key to the viability of such ventures in the Asian context is the "back-door" opening up of the strictly regulated international sector.
Predicting that the region's flag carriers have two to three years in which to prepare themselves for a changed landscape, he says that pressure from municipal, airport and tourism authorities will result in national governments allowing enhanced foreign access to secondary airports like Chiang Mai in Thailand. He believes, however, that the flag carriers will continue to enjoy political protection at the main gateways.
Harbison is joined in these beliefs by Phil Roberts, managing partner of the Unisys R2A consultancy, who reminded the AAPA members that their counterparts in the USA and Europe too said the low-cost concept would not work in their operating environments. "Don't be complacent," he warns. "Be prepared."
Stirland took the opposite stance. Speaking at his last AAPA annual meeting, he reaffirmed that the conditions that up to now have kept low-cost competition out of the region persist, key among them distance.
Because so much flying time separates Asian cities, the narrowbody aircraft model deployed to such effect elsewhere will be marginalised here, he says.
The longer stage lengths also detract from the relative importance of quick turnaround times, so vital to low-cost carrier success in the USA and Europe. The Asia-Pacific carriers, Stirland notes, already achieve daily utilisation rates of over 10 hours, which compares favourably with the 11-12 hours posted by the low-fare carriers in the West. Lastly, because the incumbent carriers overwhelmingly use widebody aircraft, their economy-class yields and unit costs are already low. These and other factors, he says, make it "extremely doubtful" that low-cost carriers will be able to drive costs low enough to mount an effective price-based challenge.
In his last statement to the gathering, Stirland asks and answers the debate's central question. "Is Asia really different to the USA and Europe? The answer is a resounding yes."
Source: Airline Business
