Aircraft will be grounded…

By Administrator |

It is only a matter of days before Asia Pacific airlines begin grounding aircraft, according to the Centre for Asia Pacific Aviation (CAPA) following this week's 'ugly traffic report' from Singapore Airlines, the dismal IATA

traffic report for January 2009 and Cathay Pacific CEO Tony Tyler's comments that the airline has entered a time for ‘difficult decisions’.

CAPA says that the battle over the dwindling premium traffic market is intensifying and it predicts that there will be casualties, with Asia Pacific full service airlines feeling the pressure of the 'Great Recession' more than most. CAPA says it now believes that major changes to networks could only be days, or at most, weeks away if conditions continue to deteriorate as expected.

It notes that Cathay Pacific CEO, Tony Tyler, this week warned it may be necessary to take some ‘very difficult decisions about our network and about the company generally in order to secure the sustainability of this business’.

But as CAPA says, the Hong Kong-based carrier would not be alone in contemplating wholesale changes to its strategy as the global economic downturn shows no signs of bottoming out. Across Asia – and the world – airlines are confronting a poisonous combination of weak revenues, falling load factors and too much capacity in the pipeline. Singapore Airlines (SIA) this week reported record load factor falls across its network in February 2009. Further network cuts (on top of those already announced) could be brought forward by SIA.

In a monthly newsletter to Cathay staff, Tyler warned that the revenue outlook is ‘very poor, and it could be a long time before we see the bottom of the market, let alone any signs of recovery.’ Yields are ‘hugely down’, as business travel to and from Hong Kong has virtually dried up.

Cathay is now focusing squarely on preserving cash by cutting capacity and implementing other measures. Tyler said: ‘…in 2007 we brought about HK$6bn ($0.7m) more cash into the business than went out. In 2008 it was HK$6.5bn ($0.8m) the other way…If we follow that direction for long, anyone can see what would happen to our cash reserves’. He added: ‘?we won't have a sustainable business if we keep flying high loads but at a loss’.

CAPA observes that network cuts now appear inevitable, not only for Cathay, but for most other Asia Pacific full service carriers that rely on business passengers to make their models work. IATA reports that Asia was worst affected in terms of premium traffic reductions again in January 2009. Within Asia, premium travel fell 23.4% and across the Pacific there was a decline of 24.7%. Premium travel between Europe and Asia was down 21.2%.

For the South Pacific, where growing competition between Qantas, United Airlines, V Australia and Delta will increase available premium seats by more than 50% over a matter of weeks, the January 2009 fall was a horrific 28.5%.

The industry body stated that the devastation has been driven by the collapse in international trade and investment in the region; exports of Japan's semi-conductors and car parts were both down by more than 50% in January. IATA stated: ‘…what started as a financial crisis in the Western economies has now become a manufacturing crisis, hitting the export dependant economies of Asia hardest’. And it is the airlines that are feeling the pain.

Worldwide, the number of passengers travelling on First or Business class tickets fell by 16.7% in January 2009, a further substantial fall from December 2008 levels, which were 13.3% down on the year.

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