Slowdown? What slowdown?! Airlines ramping up capacity
Singapore Airlines and India’s Jet Airways are the latest carriers to announce significant capacity injections into long-haul international markets, as part of a wider industry trend to grow international capacity this year. But the moves come amid growing signs of a slowdown in global economic growth.
The International Monetary Fund (IMF) yesterday cut its 2008 outlook for global economic growth for the second time this year, from 4.1% to 3.7% - and well down from 4.8% predicted by the IMF in Oct-07.
Singapore Airlines (SIA) stated it is “responding to changing patterns in demand for travel”, by scrapping services between Bangkok and Osaka next month and Taipei-Los Angeles service in Oct-08. That is, travel to/from Japan and the US appears to be softening, but notably, the route cuts are offshore, and services to these markets from SIA’s Singapore hub are being maintained.
Jet Airways meanwhile has quickly announced plans to establish its second European hub (after Brussels) at Milan Airport, with onwards services planned to the US – to take advantage of Alitalia’s pull-back from the Northern Italian city. Jet is also launching an array of new international routes in the next two months, including Mumbai-Shanghai-San Francisco service, and new routes to Hong Kong, Muscat and Abu Dhabi, as part of plans to rapidly build up its international presence.
AirAsia continues to be bullish about the prospects for growth despite a global economic downturn and targets a 20% increase in passenger traffic this year. CEO, Tony Fernandes stated this week, “obviously, we're going to benefit from a recession - one of the first things people cut is travel and entertainment, so if you're flying on a full service airline, you're probably going to trade down”.
However, the full service carrier dominated Association of Asia Pacific Airlines (AAPA) reported a “solid start” to the year, with international passenger traffic (RPKs) for its member airlines in the first two months of 2008 rising 5.1% year-on-year, with average load factors rising 0.6 ppts to 77.5% in the two-month period.
British Airways overnight reported underlying conditions in long-haul premium traffic continued to be strong in Mar-08, although non-premium long-haul and short-haul premium demand continue to be weak.
In Europe, capacity growth has started to outstrip demand in key international markets, putting downward pressure on load factors. The Association of European Airlines (AEA) reported passenger traffic (RPKs) on Asia Pacific routes in Jan/Feb-08 rose 2.2% year-on-year, but a 4.5% increase in capacity led to a 1.8 ppt reduction in passenger load factor.
Asia Pacific airlines will be watching their load factors carefully across their networks and hoping economies in Europe and Japan do not quickly follow the US in turning down. If they do, further network adjustments could be expected in the months ahead.