Comment
The bottom line
December 1st 2014
It was certainly more of the same for most Asia-Pacific airlines in 2014. The passengers kept booking in increasing numbers, but the collective bottom line did not reflect the growth. Read More » Andrew Herdman, director general of the Association of Asia-Pacific Airlines (AAPA) put it succinctly last month in his keynote address at the association’s annual Assembly of Presidents. “Relentless growth has not turned into profits,” he told delegates to the prestigious gathering held this year in Tokyo.
For another year, with a handful of notable exceptions, healthy passenger growth – at 5% for the latest 12 months – was outpaced by a capacity expansion of 1%-2% above that figure. The inevitable happened. Competition forced cheaper fares onto the market, yields shrank and profits thinned to the point of loss for many Asia-Pacific airlines.
Unlike the situation during the 2008 Global Financial Crisis, when low-cost carriers turned in good results and full service operators suffered, this time around the budget sector also is suffering as ever more airlines are launched across the region.
Complicating the picture, said Herdman, was the blurring of the lines between budget airlines and what they offer and the product provided by a full service carrier. An increasing number of LCCs segued into hybrid carriers as they responded to customer demand for booked seating, business class cabins and checked through baggage facilities.
Conversely, full service airlines are filling their back end with tickets that very closely match several fare categories of LCCs. And it is difficult to see circumstances changing. Unprecedented numbers of new seats will be arriving at Asia-Pacific airlines in the next decade and beyond to 2032, with many of these deliveries scheduled for LCCs who are intending to match some of convenient customer experiences that full-service carriers offer.
Competition will become ever fiercer. Other issues that are costing the airlines millions of dollars a year are an impending infrastructure crisis and insufficient airport capacity and runways to cope with forecast growth and air traffic congestion.
While developments are underway to increase infrastructure capacity, it is generally agreed it is too little, too late. Airlines are constantly aiming to reduce costs and absorb the impact pf events outside their control. Yet they are prone to avoiding the one strategy that makes sense: charge a price for the product that they offer which provides a fair return on their investment.
Everyone else, from airports to service providers and manufacturers to MROs do it, earning profits that are the envy of many an airline management. In such a competitive landscape it is hardly surprising that airlines are reluctant to increase fares for fear of losing customers to competitors. But is it the time to be bold?
No-one is suggesting there should be price collusion between the region’s airlines. But why don’t airlines individually take the brave step and demand a reasonable price for their tickets? In the medium to longer term, quality will attract passengers prepared to pay a little more for a safe and amenable travel experience.
