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Load factor up, profits challenged

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December 1st 2017

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It’s been a big year in Asia-Pacific aviation. Read More » Changed marketing conditions have forced two of the most successful airlines in the world, Cathay Pacific Airways and Singapore Airlines, to enter into root and branch transformation programmes planned to return them to the top of the global airline profits league.

Meanwhile, Chinese carriers are continuing their march across the globe, bringing to heel mighty North American carriers used to setting the rules for trans-Pacific airline business. At another level, low-cost carriers are broadening their networks onto long haul routes and the Middle East carriers, although slightly less aggressive than in past years, are targeting the region’s key growth centres for expansion.

So what is ahead for Asia-Pacific aviation in 2018? Analysts are unanimous in forecasting healthy passenger growth for the next 12 months, but how profitable that growth will be is another question.

On many levels, the issues that are impeding operations and costing airlines money today will continue to do so in the year ahead. The enduring problem of infrastructure shortfalls cannot be solved quickly and oil prices are continuing to climb.

The International Air Transport Association said this month that average prices for jet fuel are expected to pass US$73 per barrel in 2018. Staff costs account for 30% of total airline operating outlays and are more expensive than fuel, it added.

Another increasing financial burden for airlines is paying for stricter air passenger travel clearance procedures, a cost that should be borne by governments. Add to this a volatile geopolitical environment, natural disasters such as the active Bali volcano and the appeal of low-cost carriers to the younger aircraft passenger and the conclusion has to be that running an airline won’t be any easier in 2018.

There may be more customers, but extracting sufficient yield from selling a seat to cover costs, let along make money in such a competitive market will remain as challenging for Asia-Pacific airlines in the years to come as it was in the past.

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