Asia-Pacific airlines brace for recession blues next year

KUALA LUMPUR, Malaysia (AP) – The year-end festive season usually heralds a busy period for Asia-Pacific airlines.

But this year, a global economic slump has choked passenger and cargo traffic - and 2009 looks even gloomier, corporate executives and industry experts say.

“Last December I remember being in a very buoyant mood, telling you all that the airline was in excellent shape and the overall picture was very healthy,” Hong Kong’s Cathay Pacific Airways Chief Executive Tony Tyler said in a recent company newsletter. “Now, as 2008 draws to a close, we are facing very uncertain times and the mood has turned decidedly somber.”

While the drop in fuel prices has provided some reprieve, air traffic demand has fallen as companies and tourists cut back on travel. The International Air Transport Association has warned that the aviation industry faces its worst revenue environment in 50 years.

Asia-Pacific carriers, which account for nearly a third of global passenger traffic and 45 percent of the global cargo market, will be badly hit with losses to more than double from $500 million this year to $1.1 billion in 2009, the IATA predicts.

Aviation experts say regional airlines should be able to weather the downturn better than their American and European peers because they have relatively strong balances sheets and more modern fleets. Also, a number of airlines, including Singapore Airlines, Malaysia Airlines and Chinese carriers, are state-run, meaning they could get government support if needed.

Some analysts have said the region has less competition than the US and Europe, where more airlines compete on the same routes.

“Asia-Pacific airlines are generally better placed than their counterparts elsewhere amid difficult times but they will still feel the pain,” said Nicholas Ionides, regional managing editor of Flight International magazine based in Singapore.

While Japanese carriers appear to be having a solid year-end, major carriers Japan Air Lines and All Nippon Airways have slashed their revenue forecasts, and the economy there is slowing.

Airlines in Australia, China and South Korea are also struggling as their economies slow. India’s carriers, which are grappling with high taxes and insufficient infrastructure, can also expect lower demand following November’s terror attacks in Mumbai.

Globally, air traffic will fall three percent next year, the IATA predicts - the first drop since 2001, when the Sept. 11 terrorist attacks battered the industry.

Many airlines have cut capacity and shed jobs to cope with high oil prices earlier this year. In recent weeks, nearly all carriers in the region also slashed fuel surcharges and offered fare deals in response to declining fuel prices, and this could lure more travelers.

But signs of trouble are evident even among the region’s top players.

Korean Airlines Co., the world’s largest international cargo carrier, posted its fourth straight quarterly loss for the third quarter due to a weak won, which raised the cost of purchasing fuel and servicing foreign debt.

Cathay Pacific reported its first half-year loss since 2003 and said its full-year results would be “disappointing” amid weakening revenue and losses from fuel hedging.

Singapore Airlines said its third quarter profit dipped 36 percent and warned of “weaknesses” in advance bookings for 2009.

Australia’s Qantas Airways has cut 1,500 jobs and plans to reduce capacity to the equivalent of grounding 10 planes. It also trimmed its full-year pretax profit target by one-third.

In China, the forecast boom in travel during Beijing’s Olympics year never materialized. The state-run airlines recorded combined losses of 4.2 billion yuan ($613 million) for January-October. Slammed by surging fuel costs earlier in the year, the airlines lost again in fuel hedging after recent drop in prices.