Asian Airlines May Post First Profit in Three Years on Economy, Group Says

Singapore Airlines Ltd., Cathay Pacific Airways Ltd. and other Asian airlines will likely post the first region-wide profit in three years as the economic rebound spurs traffic to pre-recession levels, a trade group said.

Airlines in the region, which lost a total of $11 billion in the past two years, may also return to profitability faster than peers in the U.S. and Europe, Andrew Herdman, director general of the Association of Asia Pacific Airlines, said in an interview today. He declined to give a full-year profit estimate.

“U.S. carriers have been struggling with a very large, slow-growing market and on top of that, a downturn,” Herdman said by phone from Kuala Lumpur, adding that “the recovery in Europe is still anemic.”

Prospects at airlines are improving as Asia’s economies emerge from the worst recession in six decades, spurring demand for air travel and cargo shipments. Asia’s major economies will grow by 8.7 percent this year, outpacing the 3.1 percent and 1 percent expansion in the U.S. and Europe respectively, according to estimates by the International Monetary Fund.

China Airlines Ltd., Taiwan’s biggest carrier, said last month it expects to report a profit this year, while Cathay Pacific, Hong Kong’s largest airline, said in May it expects “strong” financial results for the year, as the economic rebounds lifts demand for premium passenger travel and cargo.

“Profits at airlines in the region will remain strong,” said Jay Ryu, a Hong Kong-based analyst at Mirae Asset Securities Co. “Traffic growth will continue into the second half, along with load factors.”

Record Earnings

Korean Air Lines Co. and Asiana Airlines Inc., South Korea’s two largest carriers, may post record earnings this year, benefiting from a pickup in cargo demand, while profits at Cathay Pacific and Singapore Air may return to pre-crisis levels, Ryu estimated.

Korean Air shares have risen 45 percent this year, as of the close of trade yesterday, while Asiana’s have more than doubled in the period. Cathay Pacific has climbed 8.4 percent this year through yesterday.

Capacity increases for the next six months will likely lag behind the growth in traffic as airlines in the region seek to boost profits, according to Herdman. In Asia, passenger traffic, or the total distance it carried paying customers, for the first five months of the year was 11 percent higher than a year earlier, while cargo was up 36 percent, he said.

Adding Capacity

“Airlines will continue to add capacity in the single digits and they will be watching load factors and bottom line,” Herdman said. “There’s still latent capacity in terms of under- utilized aircraft. On top of all this, you’ve got about 4 to 5 percent capacity increases from new aircraft coming in.”

Fleet utilization is 5 percent below pre-recession levels for single-aisle planes and 8 percent lower for wide-body jets after 100 aircraft were taken out of storage during May and 93 were delivered new, according to IATA.

Herdman’s association represents 17 airlines in the region, including Cathay Pacific, Singapore Air and Korean Air, according to its website. The airlines in the group account for about 18 percent of global passenger traffic and 30 percent of air cargo movements, he said.

To contact the reporter on this story: Chan Sue Ling in Singapore slchan@bloomberg.net.

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