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selecta · Member Joined: 24 Dec 2006 Posts: 813 Location: ORD

Asia Aviation Executives Upbeat About Outlook Because of High Demand, Lower Fuel Costs

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Senior aviation industry executives say airlines in the Asia Pacific region are headed to robust growth in 2007. Ron Corben recently interviewed airline executives and they say lower fuel prices and the growing China market are boons for the industry.

The International Air Transport Association - IATA - has forecast that passenger flows across the Asia-Pacific region will see the fastest growth in the world over the next few years.

IATA says booming Asian economies and growing demand for travel from the region's expanding middle class give the market strong potential. In addition, rising traffic into and out of China will help boost the industry.

IATA expects international passenger traffic in Asia to grow by an average annual rate of 5.7 percent between 2006 and 2010.

In Indonesia, the government expects the passenger load to jump to 54 million passengers by 2010, compared with 34 million now.

China is the world's fastest growing air travel market. Official state news media reported that last year 160 million passengers took to the air in China - up 15 percent from 2005.

The high growth is expected to continue as the country prepares to hold the 2008 Olympics. China's air carriers take delivery of more than 150 new aircraft in 2007 - largely for domestic routes.

The chief executive officer of South Korea's Asiana Airline's, C.B. Park, says China will be the market to watch.

"We [Asiana Airlines] have more than 20 gateways in mainland China with 26 routes. So China is definitely the booming area, so we have a good chance with Korea and China - and Japan and Korea. So it is going to be more and more in the immediate future," said Park.

Airline executives are confident that passenger growth will continue to be strong. They are less certain, however, about the direction for fuel prices.

Executives say lower oil prices - now close to $50 a barrel - have eased cost pressures for the carriers, after prices soared above $70 last year. But it is not clear if prices will stay down.

Singapore Airlines' chief executive officer Chew Choon Seng, however, is upbeat no matter what happens with fuel costs. He notes that the aviation industry was able to weather last year's high prices.

"For aviation around the world at the moment the business environment, the revenue environment is very strong," said Chew Choon Seng. "The global economy has been extremely resilient even in the fact of very high oil prices. But how long this will last is anybody's guess. But we are seeing a very healthy situation."

One factor aiding the boom has been the wave of new low-cost carriers into the Asia-Pacific market. Full service carriers focus on major trunk routes while low-cost airlines are opening new regional routes.

These no-frills carriers offer low ticket prices but typically charge passengers to check luggage and for other services. Their low prices mean that more and more people in Asia can afford to fly.

But the new entrants add to competitive pressures for older airlines, and some experts say, may create excess capacity. Air New Zealand's chief executive, Rob Fyfe, says that raises concerns for the success of some carriers.

"The issue of rationalization is more driven by just too many aircraft in the market. And it's surplus capacity that ultimately forces carriers to compete. Prices go down to unsustainable levels - they lose money because of that capacity," he said.

Asiana Airline's Park thinks, however, that capacity will expand at a slow enough pace that it can be absorbed without unsettling the industry.

"In the case of the Far East I don't think the immediate threat from the over capacity," said Park. "In the meantime the low-cost carriers in the Far East - they don't have any immediate miracle at this moment because the traffic rights are pretty much regulated, so for the time being it's going to be gradual."

There are problems, however, with expanded passenger demand. The disappearance of the Adam Air flight in Indonesia in early January has drawn attention to air safety across the region. Many governments in developing economies are struggling to upgrade their aviation safety systems to keep up with passenger growth.

And airport capacity in many countries is overstretched - with terminals overloaded, long lines at check in and planes backed up in the air waiting for space to land. India, for instance, plans to spend up to $10 billion over the next three years to expand terminals and airport runways to cope with double-digit growth in passenger loads.

Despite potential pockets of turbulence, airline executives are confident that forecasts for strong economic growth in most Asia-Pacific nations will translate into increasing air traffic. And they see new routes opening up at lower prices, which means more people in the region have access to air travel. They say those two factors make them confident of smooth flying in 2007.
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