Bumper profits for Asian airlines?

Robust passenger traffic growth and rising load factors are producing better than expected earnings for Asia Pacific airlines at the start of 2007.

However carriers with a large exposure to weakening freight markets will not make the same gains as their passenger-focused rivals, according to the Centre for Asia Pacific Aviation.

Singapore Airlines’ (SIA) Mar-07 passenger traffic (RPKs) surged 10%, while cargo volume dipped 5%. Likewise, Cathay Pacific’s passenger traffic rose 6.5%, while cargo volume fell 1.5% in Mar-07.

The all-important business travel segment remains strong in Asia. Cathay remarked that in Mar-07 it was “particularly encouraged by the number of front-end travellers, reflecting the positive sentiment in the Hong Kong business community at the moment, and the outlook remains positive through to the summer peak”.

SIA reported a SGD255 million operating profit for the three months ended 31-Mar-06, with an average passenger load factor of 77.1% and overall load factor of 69.1%. This year, passenger load factor has increased to 81.2% in the three months ended 31-Mar-07, although the overall load factor has eased slightly, to 68.7%, thanks to the slowdown in freight. But the strength of the passenger segment should ensure that SIA reports improved profits in its fourth quarter ended 31-Mar-07.


Even Garuda Indonesia, which trimmed losses in 2006, reported a good profit in the first quarter of 2007. China Southern Airlines and Hainan Airlines meanwhile have reported turnarounds in 2006, ending the year net profits after deep losses in 2005.

“With profitability surging quarterly, the credibility gap in maintaining “fuel surcharges” must be growing proportionately”, said the Centre’s Executive Chairman, Peter Harbison.

The Australian domestic market is trading well and there is media speculation that Qantas will issue yet another profit upgrade.

“But in Australia, it is a case of the calm before the storm. Already, ‘best discount’ fares in Apr-07 have plunged over 15% to their second lowest level in five years, in a sign of things to come as Tiger Airways launches services later in the year”, said Mr Harbison.

Copyright. © Centre for Asia Pacific Aviation