Asian airlines’ local demand let them weather the worst global travel slump since World War II. The carriers are now looking for growth in Europe and the U.S. to help fill planes next year.
“If Europe and the U.S. aren’t recovering that may impact Asia,” Malaysian Airline System Bhd. Chief Executive Officer Tengku Azmil Zahruddin said in an interview last week in Brunei. The carrier started taking delivery of 35 new Boeing Co. 737s this month as it modernizes and expands its fleet.
A double-dip recession in the U.S. and Europe could damp demand for Asia-Pacific carriers that are already expected to suffer profit declines because of increasing capacity. Profits at the region’s airlines will likely fall to $3 billion next year from an expected $5.2 billion this year as new planes enter service, according to the International Air Transport Association.
“We’re going to see more capacity coming into the market and that usually impacts profitability,” Cathay Pacific Airways Ltd. Chief Executive Officer Tony Tyler said at a two-day regional airline meeting in Brunei. Up until now, “we’ve been very lucky in Asia,” he said.
The airline, Hong Kong’s biggest, is returning capacity to pre-crisis levels after boosting first-half profit more than eightfold on rising passenger numbers and the sale of a stake in a maintenance provider. The carrier is due to receive nine new passenger planes next year.
All Nippon Airways Co., Asia’s largest listed carrier by sales, plans to boost overseas flights 15 percent in the year ending March helped by the opening of a new terminal at Tokyo’s Haneda airport. Singapore Airlines Ltd. has added flights to cities including Los Angeles, Moscow and Tokyo.
International air travel in the Asia-Pacific region increased 10 percent in the first nine months, outpacing gains in Europe and North America, according to IATA. The region’s cargo traffic jumped 30 percent, as manufacturers shipped more clothes and consumer electronics to European and U.S. retailers.
Demand may falter amid U.S. unemployment rates of around 10 percent and reduced government spending in Europe. Former Federal Reserve Chairman Paul Volcker, an adviser to President Barack Obama, said on Nov. 5 the revival in developed economies has been unsatisfactory. Recovery in the U.S., the world’s largest economy, will be slow and not robust, he said.
“A double-dip or slowdown in any of the major blocks would clearly undermine the pace of the recovery overall,” said Andrew Herdman, director general of the Association of Asia Pacific Airlines, which hosted the Brunei meeting.
Global passenger traffic fell 3.5 percent last year, amid the economic slump, making it the worst year in the airline industry’s history, according to IATA. In the first nine months of this year, North American international air travel has risen 6.7 percent, while European demand has gained 4.4 percent, the slowest increase worldwide.
“One thing we’re hoping for is for the European economy to pick up a little bit faster,” said Teerapol Chotichanapibal, acting executive vice president at Thai Airways International Pcl’s commercial department. The carrier gets about 20 percent of sales from Europe.
Asia-Pacific airlines have so far limited capacity increases to preserve margins. Passenger numbers jumped 15 percent in the nine months ended in September, while capacity rose 3.3 percent, according to the Association of Asia Pacific Airlines, which represents 15 carriers including Cathay Pacific, Malaysian Air and ANA.
Capacity in the region will grow in the “low single digits” next year, while traffic will rise between 5 percent and 7 percent, Herdman said. Global capacity may increase 6 percent next year, as 1,400 new aircraft are delivered, surpassing a 5 percent rise in demand, according to IATA.
“In Asia, the positive growth will continue into 2011 although at a slower pace,” said Robert Bailey, president of Singapore-based Abacus International Pte, Asia’s largest travel agency. “Still, capacity growth will surpass the increase in demand if not properly managed.”