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Have Asia-Pacific airlines over ordered?
July 1st 2015
Boeing and Airbus released updated 20-year forecasts for global aircraft demand at the Paris Air Show last month which increased their fleet projections on the basis of demand from the Asia-Pacific and particularly Mainland China. Read More »
“The Asia-Pacific will lead the world in traffic by 2034 and China will be the world’s biggest aviation market within 10 years. Clearly, Asia and emerging markets are the catalysts for strong air traffic growth,” said Airbus chief operating officer customers, John Leahy.
Boeing forecast the region will take delivery of 14,330 new jets in the next two decades and would dominate the world’s fleet.
The rush of orders from Asian airlines at Le Bourget made up almost half of the total commitments announced in Paris. They demonstrate that the region’s airlines, from full service carriers to budget airlines, are confident the upward trend in traffic growth will continue.
Of course, many of these planes, as well as hundreds of others already ordered from the region, will be arriving over a long period of time. But as discussions revealed at the International Air Transport Association (IATA) annual general meeting last month, Asia-Pacific carriers have yet to get the capacity/demand balance right.
The world’s airlines may be heading for near $30 billion in profits this year, but half of the money is coming from U.S. carriers. Airlines in the Asia-Pacific will still be profitable, but only to the tune of $5.1 billion, or a slim 2.5% net margin. Many carriers are losing money or operating at near breakeven.
Hit by stagnant cargo demand and an economic slowdown in China, there are already more seats available in the region than there are passengers to fill them. As Association of Asia Pacific Airlines director general, Andrew Herdman, pointed out at the IATA AGM last month, 2014 was a year of growth in both passenger and cargo volume in Asia, but the revenue growth did not lead to profitability.
“In aggregate, Asian airlines were barely above break-even and there was a very wide dispersion of results,” he said. And while he thought the outlook for this is a little better than 12 months ago, he also believed the region’s airlines need to take a long hard look at capacity.
Capacity is still slightly ahead of demand, which has taken away pricing power and squeezed margins, said Herdman. He is right. If our airlines order too many planes, or bring them in too quickly, sustained world beating growth might be more of a prediction than an outcome.
