Asia Business Channel

Asia-Pacific Airlines – Higher Profits in 2018

IATA also expects that the world's airlines will record profits of more than $38 billion USD in 2018, thanks to increased demands, greater efficiency and reduced interest payments on debt. On a global basis, airlines in all regions are expected to have improved profits in 2018 with North American carriers leading the pack at $16billion USD. Europe's airlines are in second place and expect $11.5 billion USD in profit, with contributions from the economic recoveries in their home markets as well as regional consolidation.

Alexandre de Juniac, the head of IATA said: "These are good times for the global air transport industry. The demand for air cargo is at its strongest level in over a decade. Airlines are achieving sustainable levels of profitability. It's still, however, a tough business, and we are being challenged on the cost front by rising fuel, labor and infrastructure expenses."

In line with stronger GDP, the world's airlines are expected to carry 4.3 billion passengers in 2018, an increase from a projected 4.1 billion passengers in 2017. Additionally, the rise in the cargo markets has been a boon for Asia Pacific carriers, which account for nearly 40 per cent of global cargo capacity.

IATA notes that, "the cargo business continues to benefit from a strong cyclical upturn in volumes, with some recovery in yields. The boost to cargo volumes in 2017 was a result of companies needing to re-stock inventories quickly to meet unexpectedly strong demand."

Labour costs, are now the biggest expense for airlines and will comprise over 30% per cent of costs in 2018 while fuel will account for 20% of costs. Andrew Herdman, the director-general of the Association of Asia Pacific Airlines, expects that airfares in Asia, which remain at "very affordable levels", may increase in 2018 in line with higher operations costs.

For Southeast Asia airlines, the operating environment looks to be more challenging than that of the wider Asia Pacific market. IATA's chief economist Brian Pearce warned that intense competition will put pressure on passenger yields. "There is significant capacity being added within the region but competition on sixth freedom or connecting markets has eased a little with cutbacks in capacity plans from the Gulf.”

Performance projections for individual Southeast Asia airlines vary. For airlines operating in Cambodia, Indonesia, Laos, Malaysia and Myanmar, there is capacity for growth and airline earnings from these countries look good in the future years. Airlines like AirAsia are positioned to receive a lift in flights and profits from these countries.

Other markets, like Brunei, the Philippines, Singapore and Vietnam may have limited profit potential because of growth activity from carriers such CebuAir, VietJet Airlines and Singapore Airlines who are all aggressively discounting fares in order to fill up available seats.

Southeast Asian airlines are also facing competition on their long-haul routes to North America and Europe, from airlines in China as well as the Gulf region which will put pressure on their seat prices and yields. The challenging operating environment has prompted Cathay Pacific, Malaysia Airlines, Singapore Airlines and Thai Airways to introduce transformation and restructuring efforts, that they hope will bring down costs and boost efficiencies so that they can generate greater profits in the years to come.

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