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Despite continued growth for airlines in Asia, high fuel prices take their toll on Asian air carriers. They respond in various ways but cuts in capacity or network’s reshaping seem unavoidable.
For Cathay pacific CEO Tony Tyler, current high fuel prices are the biggest threat ever faced by airlines in recent years, a crisis which is even worse than September 11th aftermath or the SARS epidemic of 2003. “In contrary to previous crisis in the industry, we are unable to see an end to this crisis as we do not know if fuel prices will significantly decrease. Another paradox is also the fact that traffic patterns still remain very strong,” he explained recently during a private meeting.
Spiraling fuel costs for airlines will see many carriers in Asia losing money or operate with reduced benefits. Singapore Airlines already announced that its profit for the first quarter of 2008 was down by 15.4% despite a 14.1% growth in its turnover. Cathay Pacific recently announced that it expects a strong reduction of its benefits as the airline saw its spending growing by over 60Malaysia Airlines and Qantas saw their profit reduced. Second quarter profit for the second quarter for MAS translated into a drop by 64.5% to US$ 12 million; Qantas saw its second semester profit reduced by 2.5% the year
Other airlines were less lucky: Thai Airways is back to the red with its worst loss over the last decade at US$ 246 million for April-June quarter. Taiwanese carriers China Airlines and Eva Airways saw their losses deepen in the first quarter to respectively US$ 98 million and US$ 75 million. Weakening finances will automatically translate into a reduction in air capacity; According to AOG, the perspectives remain bleak for the fourth quarter of the year on capacities between Europe and Asia. OAG forecasts the total volume of flights being down from 74,000 to 69,000 and the total number of seats cut from 17 million to approximately 16.5 million.
Thai Airways has been among the first carriers in Southeast Asia to take radical measures. The airline already cancelled its daily non-stop flight from Bangkok to New York and decided to replace its non-stop Los Angeles frequency by a Bangkok-Osaka-Los Angeles. Japan Airlines announced recently to cancel six frequencies out of Osaka-Kansai including its London flight. In Taiwan, Eva Airways announced cutting frequencies by 5% until December. From September 1st, the airline will reduce its flights to Amsterdam, Los Angeles and Ho Chi Minh City. Taipei national carrier China Airlines already cuts its total frequencies by 100 flights per week. A survey has shown that fuel increase had an impact on air travel as Taiwanese travellers flying to overseas were down by 2% in the first semester of 2008 compared to a year earlier and by down by 10% in July. Qantas is probably the airline proceeding with the most radical cut. The Australian carrier will stop flying between Melbourne and Tokyo and will reduce frequencies from Sydney to Los Angeles and Tokyo. It will also transfer to its low cost subsidiary Jetstar its routes to Indonesia as well as Cairns-Tokyo.
Despite robust economic growth, airlines in Mainland China are also reducing their schedules in the coming months. Passengers demand has indeed being affected in recent times not only by fuel prices increases but also the earthquake in Sichuan and the Olympic Games which translated into stricter visa conditions for foreigners. China Eastern just announced that its traffic slumped by 10% in July. China Southern already reduced its frequencies to Dubai, Los Angeles, Indochina, Penang, Seoul, Singapore, Sydney and in Europe to Paris. “There is not sufficient air traffic demand now. Despite the rise in fuel surcharges, airlines will have to make more discounts in order to compete for passengers,” declared Luo Zhuping, a director of China Eastern to the Guangzhou Daily.
Low cost airlines are likely to jump into the empty seats left from legacy carriers. As seen before, Jetstar will take over some of Qantas Airways routes with AirAsia X boosting its operations to Australia from Kuala Lumpur with new frequencies to Melbourne and Perth. Thai AirAsia is still looking to expand by offering new flights from Bangkok to Bali. The airline just announced the launch of a daily service to Hong Kong. Generally, the AirAsia group is looking for strong expansion as it sees the current fuel crisis as an opportunity to strengthen its own operations. “The best way to upset fuel costs is to fly more and divide this cost by more passengers,” declares AirAsia CEO Tony Fernandes. Singapore-based Tiger Airways is also upbeat about its future in Australia. The airline just added a second base in Adelaide and seeks now government’s permission to fly internationally. It is also ready to open a subsidiary in Korea, named Tiger Airways Incheon. In the Philippines, low cost carrier Cebu Pacific is also launching a third base at Davao with international flights to Hong Kong and Singapore.
Luc Citrinot (in Bangkok)
Luc Citrinot a French national is a freelance journalist and consultant in tourism and air transport with over 20 years experience. Based in Paris and Bangkok, he works for various travel and air transport trade publications in Europe and Asia.
