Trending in 2015

December 1st 2015

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• Chinese Airlines going long-haul with at least 10 Mainland carriers to launch international services in 2016 Read More »

• Gulf carriers continue their expansion into the Asia-Pacific as several governments relax bilateral agreements

• North American carriers develop their trans-Pacific networks as they upgrade their fleets and service

• Low-cost carriers surge past 50% of available seats in the region, but stall fleet expansion as profits fluctuate

• Positive impact of lower oil prices on airline profits continues

• U.S. Federal Aviation Administration downgrades Thailand for its safety lapses

• Chinese banks and the region’s tycoons buy into global aircraft lessors

• A350 successfully launched into service in the region and B787 continues to charm its airline owners

• Air traffic congestion inflames passengers, loses airlines millions and causes carbon emission creep

• Airlines adopt new rules for flying over conflict zones worldwide

• Social media re-shapes cabin behaviour and airline marketing and disrupts the accepted models of airline crisis management

• SWOT: China rolls out its mid-size C919 jet and the ARJ finally flies as Russia and the Mainland commit to building a joint venture airliner

A CONTRADICTORY YEAR

Unexpectedly low oil prices produced unexpectedly healthy profits for most Asia-Pacific airlines in the last 12 months. But unfortunately for the prudent among the region’s carriers, they hedged too soon and their fuel bill is costing them dearly.

In the same 12 months, Asia-Pacific airlines lost their top spot as the most profitable region in the world. The North American carriers are on a roll from consolidation, cheap oil, a huge domestic market and a recovering – slowly – economy. The last time they made this much money was in the glory days of the 1970s and 1980s, before the U.S. industry was de-regulated.

This North American airline affluence, along with the unlimited ambitions of Gulf carriers and China’s growing and deep-pocketed list of long-haul carriers, is a daily threat to the former successful format of Asia-Pacific airlines, especially the full service airlines.

As an example of the challenges ahead, in coming months, Emirates Airline will fly two A380s a day into Bangkok. The configuration will have 615 seats, most of them in economy. At Singapore Changi, the Dubai-based carrier is about to overtake Cathay Pacific Airways as the largest foreign airline at the airport. The numbers are a result of its feeder tie-up with Singapore-based Jetstar Asia. The Australian controlled LCC is owned by the Qantas Group which has a wide-ranging partnership agreement with Emirates.

In Australasia, under a relaxed bilateral, Qatar Airways has been granted expanded rights to fly into Australia, which will allow it to launch daily Sydney-Doha flights from March, bringing its weekly services to Australia to 21. Emirates, in partnership with Qantas, operates 84 services into Australia. Etihad Airways flies to Brisbane, Melbourne, Perth and Sydney from Abu Dhabi.

But it is not all one way traffic. Chinese carriers, emboldened by their high load factors and the relaxation of visa rules in many countries for Chinese travelers, are roaming further and further afield to major U.S., Europe and Australasian cities.

Recent statistics revealed that Australia is the most popular destination for Chinese tourists and that the U.S. is the biggest market for them.

A counter balance to these threats of carriers from beyond the region, are the benefits Asia-Pacific airlines are reaping from the next gen aircraft being produced by Airbus and Boeing, and on a smaller scale, Embraer and Bombardier. The aircraft technology, a step change to lighter, faster and cheaper to operate aircraft is opening up destinations that Asia-Pacific airlines never thought possible, including non-stop flights to the U.S. East coast and South America.

The A350XWB was delivered to its launch customer, Qatar Airways 12 months ago and to Finnair and Vietnam Airlines this year. A350 customers taking delivery of the aircraft in 2016 are Singapore Airlines, Cathay Pacific Airways, Thai Airways International, China Airlines and SriLankan Airlines. Asiana Airlines will receive its first A350 next year, Air China in mid-2017 and AirAsia X around 2020.

Boeing will increase its production of B787s from 10 to 12 a month in 2016 and will deliver 38 B787-800s and 102 B787-90s to customers worldwide. Flag carrier, Air China, will receive its first B787 in a few months and Hainan Airlines and Xiamen Airlines will take delivery of their initial B787-900s next year.

Until recently, it was a commonly held belief that it would take another 20 years before China would produce a jet aircraft that would match the quality of first world aerospace manufacturers. There may have to be a re-think on that. Japanese and Chinese manufacturers are becoming larger threats than anticipated and the newcomers made plenty of news in November.

After a long, long wait, the Chinese- manufactured C919, the Mainland’s answer to the A320 and B737, was rolled out on November 2 in Shanghai, with its maiden flight re-scheduled from this month to next year. The project was launched in 2008 and has 517 orders from 21 mostly Chinese customers.

On November 29 in Chengdu, after a 13-year period of development, the local budget carrier took delivery of China’s first COMAC ARJ21, an all-economy 90-seat aircraft. COMAC owns 48% of Chengdu Airlines.

Nine days later, Japan’s first passenger jet, the Mitsubishi Regional Jet (MRJ), made a 90-minute maiden flight from Nagoya airport. The decade-long project to manufacture a viable competitor to Embraer and Bombardier is the first aircraft to be built in Japan since the turboprop, the Ys-11, ceased production in the 1970s. More than 400 orders have been made for the jet, with launch customer, All Nippon Airways, scheduled to receive its first aircraft in 2017.

In the September issue of Orient Aviation, AirAsia Berhad boss, Aireen Omar, was confident the carrier would return to profit in 2015 after a rocky start to the year that included reducing its fleet requirements. True to her forecast, the Kulala Lumpur-based LCC reported a third quarter profit for the three months to September 30. AirAsia is committed to developing its new hub on Langkawi Island where it is preparing to launch services to Hong Kong and Guangzhou. The carrier overtook Malaysia Airlines Berhad (MAB) in September as Malaysia’s biggest airline.

The Mark 2 version of AirAsia Japan will be launched in March 2016. Low-cost carriers now hold more than 30% of the Japanese/South Korean market and the business continues to grow. Five LCCs have launched in Japan in the last four years. New entrant, Spring Airlines Japan, plans to fly to Chongqing and Wuhan next year while All Nippon Airways’ (ANA) part-owned Peach Aviation and Vanilla Air prowl for Greater China customers attracted to Japan by the depreciated yen. Peach, Japan’s most profitable LCC, has hubs at Kansai/Osaka, Okinawa and Tokyo/Narita.

Ambitious Skymark has been returned from near death courtesy of investors, including ANA, in a rehabilitation plan that has seen Japanese private equity fund, Integral Corp, take control of the carrier with a 50.1 holding. The other shareholders are the Development Bank of Japan and the Sumitomo Mitsui Banking Group, with a joint holding of 33.4% and ANA Holdings with 16.5%.

Hainan Airlines continued its shopping spree during the year, roaming as far afield as South Africa, where it bought 6.2% of Johannesburg headquartered Comair.

In Hong Kong, HK Express, in its new structure as a budget carrier, turned two in October, with some healthy statistics: a fleet growth plan of up to 20 A320s, including A321s, and more than three million passengers carried to 19 regional destinations from its Hong Kong home base.

In June, Jetstar Hong Kong was told it had failed a requirement of principal place of residence and had its application to launch rejected. Initially, a 50/50 joint venture with China Eastern in 2012, it changed to a three partnership ownership in 2013. It was believed the arrival of Shun Tak would persuade the government that the carrier had met its legal requirements to start operations. Qantas Group boss, Alan Joyce, said the company would look north for growth and that Asia was now a greater focus for the airline group’s operations.

Vietnam’s Jetstar Pacific had to lift its game in 2015 as upstart competitor, Vietjet, stole its thunder by taking the lead in the local market. Partially owned by Australia’s Jetstar, the carrier is launching routes after Vietjet signaled its expansion with a major fleet order.

Singapore Airline’s regional carrier Scoot, is close to profitability as its feeder relationship with Tigerair, also an Singapore Airlines Group subsidiary, deepens. Its joint venture, NokScoot, based at Bangkok’s Don Mueang Airport, however, has suffered because of Thailand’s safety oversight deficiencies. Japan and South Korea initially declined to accept any new routes from airlines based in Thailand because of the threat of safety downgrades.

For the full service carriers, it was a mixed year. Passenger demand continued to grow by more than 8% and premium economy is becoming an option for more of the best airlines, including Singapore Airlines.

However, the uncertain global economy and the slowing of China’s growth has depressed demand in the premium cabin, a market segment that makes substantial profits for full service airlines.

“With Asia-Pacific carriers working hard to improve profitability, this is absolutely the right time for governments to re-think a new approach to the industry that is so crucially linked with sustainable growth and economic development of the region,” said the director-general of the Association of Asia-Pacific Airlines, Andrew Herdman, said at the association’s annual Assembly of Presidents in November.