Dark years’ ahead for Asian airlines – conference report
An AFP report for Singapore says Asian airlines face bleak business in the next two years amid a global recession and must deal with the challenges or risk extinction, an industry conference was told Thursday.
Carriers from Asia and the Middle East, which are generally seen as having healthier balance sheets, will not escape the financial turmoil which has spilled over to affect the global economy, speakers at the conference said.
“Looking ahead, I think we are facing, frankly, a couple of dark years for the aviation business,” said Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation consultancy.
“The thing we all realise by now is this is not just another downturn,” he told the Aviation Outlook Asia conference in Singapore.
Harbison warned against airlines being complacent, saying any carrier that refused to take the challenges seriously would be at risk.
“There is no airline in this region, and that probably goes for most of the world too, that can be confident they will still be here this time next year,” Harbison said.
“This is going to be a watershed, if it’s not already, not just for the industry but for the global economy… Any airline that thinks otherwise is seriously at risk.”
Apart from having to cope with slowing travel demand, particularly in the lucrative corporate travel segment, airlines also must deal with volatilities in foreign currencies which will impact their hedging strategies, said Harbison.
Currency instability “has created massive problems for airlines in terms of their risk management, in terms of their hedging,” he said.
“If that stays as an issue, it is going to continue to be highly disruptive for the treasuries of the airlines.”
Andrew Herdman, director general of the Association of Asia Pacific Airlines, told the conference the mood in the industry had dramatically altered in the last few months.
“You saw the way everything has fallen off the cliff… so the mood has changed,” Herdman said.
He said the surge in oil prices to record levels of above 147 US dollars in July was “killing airlines’ profitability”.
While prices have since halved to about 70 dollars a barrel, the revenue outlook for carriers remained extremely gloomy.
“It’s still the number one cost for almost every airline in the world,” Herdman said of fuel expenses.
Despite the gloomy environment, Damien Horth from Swiss banking giant UBS sees a window of opportunity for airlines to undertake changes that will result in a stronger industry.
“There’s not a lot of industry change during the boom times… We have a big opportunity for change in the aviation industry given what’s going on right now,” said Horth, head of transport research at UBS.
“It does need to change more through this downturn,” he said, adding he felt there were too many subsidies being given out within the sector.
Horth also said the balance sheets of the region’s airlines “are actually quite weak”, with the exceptions of Singapore Airlines and Hong Kong’s Cathay Pacific.
“2009 is going to be very, very difficult indeed,” he said.
A Report by The Mole
John Alwyn-Jones
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