Asia Pacific airline losses hit USD10 billion in 2008 - is worse to come?

Airline losses in the Asia Pacific region exceeded USD10 billion last year (or USD27.3 million per day), according to the Centre for Asia Pacific Aviation's estimates - some three times more than the most recent estimation by IATA.

Preliminary data from the Association of Asia Pacific Airlines (AAPA) show its members reported a combined USD4.3 billion loss last year - a shocking USD9.5 billion turnaround from the combined USD5.2 billion profit in 2007. China's airlines (which are not members of AAPA) reported combined losses of approximately USD4 billion last year, while Indian subcontinent airline losses were around USD2 billion, according to The Centre. The combined USD10 billion loss is the worst ever. But that unhappy record could soon be broken.

AAPA member revenues rose 6% to USD109 billion last year, but were swamped by soaring fuel costs, which rose by almost USD10 billion, to USD38.1 billion in 2008, accounting for 35% of total costs. AAPA added that in some cases, the results were exacerbated by losses on fuel hedging contracts and adverse currency exchange movements.

AAPA members shrinking

Slowing traffic volumes in the second half of last year also hit the bottom line. AAPA members' international passenger numbers fell 2.2% last year (after +4.2% growth in 2007), while the average passenger load factor fell 2 ppts points to 75%. AAPA international air cargo traffic for 2008 declined by 6.7% (after +2.7% growth in 2007).

AAPA Director General, Andrew Herdman, stated, "airlines began the year in good heart, following record traffic levels and solidly positive financial results in 2007. Unfortunately, in 2008, we were hit by skyrocketing oil prices followed by rapidly weakening demand in the second half of the year as a result of the global economic slowdown. Consequently, revenues failed to keep pace with higher fuel costs, squeezing margins and causing many airlines to report significant losses for the year."

Outlook: Crisis-ridden

A repeat performance in 2009 is now almost inevitable, as airlines across the region grapple with falling demand, especially lucrative premium demand, and excess capacity. IATA is predicting a halving in net losses in Asia to USD1.7 billion in 2009, but The Centre expects the final figure could be on par, or exceed the 2008 figure. If this is the case, and current demand and yield trends continue for the next six months, fundamental operational and structural changes will be forced on the region's airlines.

Mr Herdman stated that though oil prices have fallen back, "in every other respect the challenges we are currently facing in 2009 are even tougher than last year". He added that airlines are taking necessary steps to respond to the crisis, but they are also calling on governments, regulatory authorities and other industry partners to "work cooperatively towards a sustainable recovery". The swine flu outbreak has added a "further element of unpredictability to the situation", according to Mr Herdman.

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