Into the unknown

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

December 1st 2016

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As another year draws to a close, Asia-Pacific airlines can look back on a relatively stable 12 months. Fuel prices have remained moderate. Passenger traffic continues to grow. Read More » There were no major crises in the region. Profitability is as good as it has been for years.

But when airline leaders met in Manila for the 60th Assembly of Presidents of the Association of Asia Pacific Airlines last month, there was caution in the air when discussions turned to the year ahead.

Apart from the perennial issues of worsening air traffic congestion and over-capacity, the CEOs were most worried that competition and low oil prices were having an adverse impact on income.

Combined, the two factors have forced down fares to unprecedented levels, with the result that airlines are carrying more passengers but are making less money.

The region’s carriers are about to report a combined $6.63 billion profit for 2016, which is their best result in years. The question is can this profit run be sustained in 2017?

International Air Transport Association’s (IATA) regional vice president Asia-Pacific, Conrad Clifford, pointed out in an Assembly panel discussion that this year 60% of airline profits will be made in the U.S.

In this region, over-capacity is a particular problem, especially at low-cost carriers. The election of Donald Trump as U.S. president elect and the vote for Brexit have added to industry volatility. Both Europe and North America are very important markets for Asia-Pacific carriers.

“It’s very difficult to call the direction of the market. We’ve had seven years of pretty solid growth. That’s been good, but no one really knows where it’s going from here,” Clifford said.

In the view of Orient Aviation’s 2016 Person of the Year, Qantas Airways CEO, Alan Joyce, new technology will be critical in sustaining a profitable airline. As he nears the completion of the Qantas Group’s three year turnaround, he said operational and managerial transformation has to become the built-in core of the business and not just a one-off exercise. No one would disagree, but that does not mean it will be easy.