Growth in low-cost carrier passenger traffic within Asia Pacific


SINGAPORE – Airline companies have played an immense feat, juggling both the legacy and low-cost carrier segment with unwavering commitment in going through the test of times during the last seven years and especially through 2008. The year 2007 was a year of regaining profitability for the airline industry after the uphill struggle of cutting off redundant infrastructure and going through various mergers and acquisitions and recovering from the post 9/11 downturn in volume of passenger air traffic. The exponential surge in fuel price and present volatility in financial sectors have significantly affected the aerospace industry as a whole.

According to Frost & Sullivan Asia Pacific Consultant of Aerospace & Defense Practice Amartya De, the year 2008 alone saw the International Air Transport Association (IATA) terminate 26 carriers and is keeping watch on 10 – 15 other carriers.

“This watch is not concentrated on any particular part of the world, but rather, in many different pockets. The load factor has remained more or less close to 75 percent since the last 7 years, and there is not much one can do above this unless the existing capacities are significantly cut down,” he said.

He added that North America has been the largest loser in 2008 with Europe and Asia Pacific making meager profits of a few hundred million dollars and the Middle East retaining a little respectable share by the close of 2008.

“Airline companies will be able to rationalize and offer efficient services with gradual freedom to operate in open skies if governments look to deregulation as a way to promote the industry as a whole. The previous drop of 50 percent in airline share prices might just reach their initial levels, post all the merger and infrastructure cutbacks by early 2009,” he continued.

In terms of industry, Frost & Sullivan estimates that the year 2009 will have its share of global losses owing to the liquidity crunch in the airline industry but most of it will be taken off by the US market. Emerging economies in Asia Pacific will still see an increase in passenger traffic of the order of 5 – 7 percent.

“The prices of air tickets globally will have come down to initial levels by end of 2008. On a positive note, the Asia Pacific players will not face any loss for 2009 and might even be left with few cents in the pocket. The market will still see reasonable growth in Low Cost Carrier (LCC) passenger traffic within Asia Pacific and even in the long haul segment,” De said.

Frost & Sullivan also estimates that there will be stronger growth in the economy class travel rather than in the long-haul business class travel mainly for Asia and intra-Europe. “The three sectors – namely Europe-Middle East, Middle East-Asia, and Asia-Europe – will continue to grow at about 7 percent CAGR in 2009,” De continued.

He also added that despite the financial slowdown, there will be continuing demand for new and fuel-efficient narrow body aircrafts with around 1,800 new fuel-efficient aircraft deliveries for 2009 equally shared by Boeing/McD-D and Airbus, while on the other hand, airlines will continue to deal with volatility in foreign currencies and hedging strategies.

“The financial torrent is affecting the aircraft leasing sector more than ever before and these times of change are definitely going to lay the new foundations of this industry. Increasing cost-cutting measures and resource sharing are forging together new business models in the airline industry,” he said.

According to De, “The distinction between Legacy and LCC becomes thinner and thinner, and eventually we will see fewer carriers with better service and a reasonable ticket prices.”