Turbulence ahead for Asia's airlines


Air New Zealand is one of the carriers in the region to fall into difficulties in recent months. It is now majority owned by the NZ government.

By CNN's Geoff Hiscock
Asia business editor

SYDNEY, Australia (CNN) -- Asia's airlines still face plenty of turbulence after the worst year in aviation history, according to analysts at the Center for Asia Pacific Aviation.

They say a return to long-term growth trends for the Asia Pacific aviation industry is not likely until at least late 2003.

Nor do they expect any substantial recovery from current lows before late this year.

Air traffic, already weakened by the 2001 economic downturn, dropped dramatically after the September 11 terrorism attacks.

Several big airlines collapsed, including Sabena and Swissair, while Asia Pacific regional carriers Air New Zealand and Ansett fell into difficulties.

In a further sign of the poor outlook for the industry, Singapore Airlines announced last week it was deferring delivery of six Boeing aircraft, following its November deferment of 10 Airbus A340s.

'Unacceptable risk'


Japan Airlines is merging with Japanese domestic operator JAS

Releasing the Sydney-based center's 2002 outlook Friday, the analysts said that for the industry to wait for rescue from an economic upturn that may come sometime this year is "an unacceptably high risk strategy".

It said the region's airlines, airports and tourism industry should fundamentally review their medium term projections.

"The next three months will be critical to decisions on the shape of airlines in the long term," it said.

"Net revenue drops of 15-20 percent -- combining traffic and yield decreases -- simply cannot be corrected by even the fiercest of conventional cost reductions," it said.

The center predicts that many of the key developments having an impact on the Asia Pacific region will be decided elsewhere, and outside the control of the region's airlines.

Handful of groups

It sees three to four major airline groups on either side of the Atlantic emerging this year, and stresses the importance of alliances for Asian airlines.

Already, Singapore Airlines, Thai, ANA and Air New Zealand are part of the Star alliance with industry giants United Airlines and Lufthansa, while Cathay Pacific and Qantas are part of the oneworld alliance with American Airlines and British Airways.

JAL is unaligned, while Korean Air is part of the smaller SkyTeam alliance with Delta, Air France and Alitalia.

The report notes that the future shape of alliances is difficult to predict.

"This is a particular problem for Asian carriers, which are essentially no more than appendages to Euro-American alliance core partners."

Limited options

It says individual Asian airlines face limited options, including substantial foreign ownership, government ownership or liquidation. Malaysia Airlines and Air New Zealand have already reverted back from private to government ownership in recent months.

That leaves only a handful of Asian carriers, including Cathay Pacific, JAL, Qantas, Korean, Philippine Airlines and All Nippon, in private hands.

The center says one bright spot for carriers is the fall in fuel prices, which has given many of them a 5 percent cost saving. But it warns this advantage could vanish in an economic upturn.

On the airport front, the center says that clear winners in the battle of Asian hubs are yet to emerge, and the competitive environment will become even more challenging in the year ahead.

In addition to existing hubs such as Singapore, Hong Kong, Tokyo and Shanghai, other countries are keen to stake their claims.

Korea is pushing ahead with an expansion of Incheon airport, Thailand has just begun the new Bangkok airport, Japan will complete the upgraded Nagoya international airport in 2005 and Guangzhou has a new airport in the works.