Uncertain times ahead

Asia-Pacific passenger traffic consistently outpaced global economic growth, the Association of Asia-Pacific Airlines (AAPA) director general, Andrew Herdman, told delegates at the association’s Assembly of Presidents last month, but impediments remain that constrain efforts to deliver sustainable profits.

by TOM BALLANTYNE FROM BALI  

December 1st 2015

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It was a good year for the bottom lines of Asia-Pacific airlines. But it was also one of disruptive and inconsistent trends in industry regulatory and safety oversight, airspace risk assessment and aviation infrastructure planning. Read More »

In his opening address at the Assembly, held this year in Bali, the AAPA director general, Andrew Herdman, told delegates Asia-Pacific airlines were on course for record profits in 2015 as a result of lower fuel costs and rising passenger numbers.

But he did not allow himself to be carried away with the numbers. Herdman said he viewed the future of the region’s airlines with “cautious optimism” and that numerous challenges faced the industry.

“While the outlook for passenger growth looks positive, there is continued pressure on the region’s airline leaders as they endeavor to boost profitability and support growth,” he said.

“We’ve seen amazingly robust and steady expansion in passenger traffic in the last several years despite the post (global financial) crisis headlines about what’s is going wrong with the global economy.

“Passenger traffic has consistently outpaced the growth of the global economy and that is testimony to the fact that air travel is as popular as it’s ever been.”

With the region’s airlines now carrying a third of the world’s passengers, Herdman referred back to last year’s figures. He said 2014 was a record year for passengers in the region but was still a tough twelve months for many Asian airlines.

“In terms of profitability, 2014 was a year of achievement for the Asian airline industry, but if you aggregate the results Asian airlines only broke even. So a breakeven result in a good year of traffic growth tells you how tough it is,” said Herdman.

At the Assembly, airline chiefs discussed and sought resolutions to several issues hampering industry progress, including safety, airspace risk assessment, aviation infrastructure, consumer protection and taxes and charges.

They remain particularly concerned about the ever present problem of congestion at the region’s airports and along airways, a planning failure that is costing carriers tens of millions of dollars as delayed flights eat up extra fuel and crew time and challenge the loyalty of their passengers.

Philippine Airlines (PAL) president, Jaime Bautista, told the Assembly congestion at Manila’s Ninoy Aquino International (NAI) was worsening. “We calculate that each minute an aircraft is delayed it costs us $60. In a year, this can add up to $40-$45 million in lost revenue for us.”

The situation at NAI, one of the most congested airports in Asia, has led to a reduction in aircraft movements to 40 an hour. The reduced aircraft movements contributed to some 70% of PAL delays out of Manila, with 90% of them caused directly by in-air traffic congestion.

“Our growth is hampered by this chronic congestion,” Bautista said. PAL is looking to fly out of alternative, secondary hubs, such as Cebu Mactan, to avoid the problem.

Herdman said even some of the best managed airports in Southeast Asia are showing signs of congestion, notably during peak hours. He believed most authorities understood Asia-Pacific aviation infrastructure had to keep pace with traffic growth and that some governments were investing in more infrastructure. “I am hopeful that this momentum will continue,” he added.

Singapore Airlines CEO, Goh Choon Phong, said there was “no escaping from having to work with the authorities to resolve this issue”. Singapore Changi is one of the region’s best airports, with another new terminal and runway being built, but SIA faces the same congestion issues as everyone else when they fly around the region, he said.

“We took a view of not going to the public and complaining about it, but going to the authorities and working with them to identify what can be done,” said Goh. He encouraged all airlines to do the same and to suggest to their authorities they look at other places in the world where there are best practices in place and learn from them.

A resolution accepted at the Assembly pointed out global air travel demand is projected to grow 5% annually, with the Asia-Pacific expanding at an even faster pace, at 6% per annum in the next twenty years.

“The overall efficiency of the Air Traffic Management (ATM) system of the region needs to be increased through improved airspace design and harmonization delivering seamless operations, enhanced safety and sustainability,” the resolution said.

“Failure to make the necessary investments and operational improvements in ATM infrastructure and services to keep pace with air traffic growth would lead to adverse consequences for the travelling public and the wider economy, in the form of congestion and delays, leading to operational and environmental inefficiencies.”

The AAPA renewed its call on Asian governments “to commit to a programme of investment in efficient air traffic management, prompt implementation of recognized international standards and best operational practices” and for governments “to work together to implement ATM infrastructure improvements and to co-ordinate with other industry stakeholders to expedite investment and implementation”.

Threats to aircraft flying over conflict zones and the existing system of risk assessment have moved to the top of the agenda for the region’s airlines after the shooting down of MH17 on July 18 last year.

The AAPA said every country retains the sovereign right to decide if it will close its airspace, but it urged governments to improve the sharing of information and to coordinate their actions with the aviation industry’s International Civil Aviation Organization (ICAO).

“Following the tragic loss of MH17, ICAO developed an online centralized global information repository to enable states to distribute additional risk information related to operations in the vicinity of conflict zones, supplementing existing information channels,” it said in a resolution.

“States are responsible for issuing risk advisories regarding threats to the safety of civilian aircraft operating in their airspace, such as armed conflicts, ash clouds and missile and rocket launches, whilst air carriers are responsible for conducting comprehensive assessments of safety and operational risks for regular flight operations planning purposes.

“The AAPA urges governments to improve efficiency in providing accurate and timely information regarding threats and risks to civil aviation, particularly those associated with conflict zones. The AAPA sees the need for governments to review the effectiveness of the global conflict zone information repository and the associated information sharing process to provide timely guidance to air carriers and air navigation service providers,” it added.

Not surprisingly, the Bali assembly pointed out the travelling public continues to pay numerous government taxes and charges as well as fees to monopolistic service providers and other agencies.

“Despite past exhortations, there has been a proliferation of taxes on international air transport and charges on passengers, several of which can be categorized as in contravention of International Civil Aviation Organisation (ICAO) policies on taxation. The travelling public is often unaware of the variety and magnitude of such taxes or charges, especially when collected with airfares,” said the AAPA.

Some friendly advice?

“The Association calls on governments to adhere to ICAO policies on taxation and ensure such recommendations are followed by all relevant taxation authorities, as well as to avoid imposing unjustified or discriminatory taxes on international aviation, that undermines global tourism and its wider contribution to economic development,” said an Assembly final resolution.

“Less taxation and better regulation. This is what is needed to invigorate an industry to realise its full potential as a catalyst for the Asia-Pacific,” said Herdman.

Summing up member carriers’ financial performance, Herdman said Asia-Pacific airlines reported a dramatic profit improvement in the first half of this year and that the momentum had continued into the third quarter. Strong passenger demand and lower fuel costs were offsetting negative factors such as currency devaluations, lower yields and weak airfreight demand, he said.

The under performing air cargo sector is becoming a drag on overall results, Herdman said. An oversupply of freighters was still “hanging over the industry”. Future freighter demand is expected to be strong, but there is a surplus in the region’s cargo fleet in 2015.

Last year saw welcome cargo growth, after a period of stagnation, and there was a “bright start” to this year, said Herdman. “As the year progressed, cargo growth tapered.

Cargo traffic was up 2.6% for the first nine months of 2015, but most of that increase was in the early part of the year with the boost due to the “windfall” of U.S. seaport disruptions that diverted some cargo to air freight.

The AAPA also passed a resolution on safety calling on governments to respect the primacy of ICAO standards and guidance, whilst recognizing that any additional restrictions should be based on transparent criteria, strong evidence, and take into account their potential extra-territorial impact. It said it was looking to governments in the region to favourably consider the creation of a cooperative regional body to support national aviation authorities’ enhanced safety oversight and guidance.

“Flying is already the safest mode of travel,” said Herdman. “Yet the industry never takes this for granted, and this is why safety standards have been steadily improving year after year. Accident rates in the Asia-Pacific have halved over the past decade.

“But with growing air travel demand, we cannot afford to be complacent. We must ensure that the quality and consistency of safety oversight are commensurate with such growth. More efforts are needed by some governments to strengthen their systems of regulatory oversight in line with globally agreed ICAO standards.”