Aviation industry at historic turning point - 2009 Aviation Outlook report

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"Crisis is part of the airline industry's genetic profile. And still it survives, more or less intact. But today, the industry is at a crucial turning point in its history. Never before has it been confronted by the current confluence of events", stated Peter Harbison, Executive Chairman of the Centre for Asia Pacific Aviation.

The Outlook report stated, "many governments have actively intervened in the market to stimulate economic activity, which can make it difficult to decipher superficial from systemic improvements".

"Most painfully for network carriers in this region, the unimaginable slump in premium travel - a larger market segment than for other parts of the world - has seriously undermined a bloated over-reliance on high yielding traffic. The suddenness of the reversal, along with a large backlog of aircraft orders in this region, has caught managements unaware and unprepared.

"The outcome of such a collision of economic and deregulatory forces is considerable financial agony for many in this highly econo-sensitive industry. Together with the pain comes a forced re-appraisal of the very essence of the way the industry works.

The report concludes, "there can be no doubt that the highly regulated international airline industry is ripe for reinvention...So, faced with an almost inevitable need for fundamental industry restructuring, governments now face a big test"

"Unless there is a substantial upturn in demand before the fourth quarter of 2009, even those airlines with substantial reserves will be forced to reconsider their very existence...Instead Asia Pacific airlines must engineer their own, inevitably innovative, solutions. They will be barely palatable. But actions taken now may be the reason that their brands are still there in five years' time".

Growth prospects

The report notes that there is little doubt that, once economies turn upwards, the leading growth region will be Asia Pacific and the Middle East. If global airline expansion does not in fact return to the long term growth trend, there can be little doubt that the surging economies in this region will more quickly come to occupy the high ground.

"This offers the prospect of a much more influential role for the region's airlines in global strategies, as the new world evolves. Not only will growth and profitability be higher in Asia Pacific, but also the power will be with the region's airlines to call the shots in what will almost certainly be an era of consolidation and merger", according to the Outlook Report.

"That then is the unique potential that 2009 offers. It may not come again".

Profitability - or lack of

The Centre does not expect any major network airline in this region to deliver an operating profit in 2009.

"Accepting that as a probability (while trying to avoid it) and working towards a sustainable future is the priority. But, if the opportunity is recognised and accepted, the potential is there to create an industry that is both financially viable for the long term and which effectively meets consumer needs. That should be the boardroom (and Cabinet room) goal for 2009 - not chasing the status quo. That would be a recipe for long-term disaster".

Part 1 of the Outlook 2009 report contains a 10-part Risk Assessment Guide, while Part 2 covers country-by-country developments and outlooks for the major Asia Pacific economies.

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