Airlines in the Asia Pacific region are on course for a year of record profits, as lower fuel prices and rising passenger traffic boost bottom lines.
This industry outlook was provided by Andrew Herdman, director-general of the Association of Asia Pacific Airlines (AAPA), on the opening day of the Assembly of Presidents in Bali on Thursday.
Addressing the media, Herdman said that the region’s airlines are set to build on the record passenger numbers experienced in 2014, which, combined with a sharp drop in fuel prices, are driving record profits.
“We’ve seen… amazingly robust and steady growth in passenger traffic over the last several years, and that’s despite all the post-[global financial] crisis headlines about what’s wrong with the global economy,” said Herdman. “Passenger traffic has consistently outpaced the growth in the global economy, and that’s testimony to the fact that air travel is as popular as it’s ever been.
“Last year we saw record passenger numbers… and this year we’ve seen a continuation of passenger growth, albeit at even faster levels.”
The world’s airlines carried 3.3 billion passengers last year, and Asia Pacific accounted for approximately one third, or 1.1bn, of these. But despite these strong figures, Herdman said 2014 was still a “tough year for many Asian airlines”.
“In terms of profitability, 2014 was a year of achievement for the Asian airline industry… but if you aggregate the results Asian airlines broke even. So a break-even result in a good year for traffic growth tells you how tough it is,” Herdman warned.
And while IATA is predicting a combined industry profit of US$29bn in 2015, that would still reflect only a 4% profit margin, which Herdman said was “modest at best”.
In Asia, an “overdose” of capacity by low-cost carriers has impacted profits, while intense competition in Southeast Asia means that profitability remains “elusive” for many of the region’s airlines.
But despite this, Herdman predicted that 2015 “should be a record year for the Asian industry”. The “dramatic” decline in fuel prices, he stated, has provided a double boost for airlines, significantly lowering their costs and allowing them to offer lower fares, which is driving higher passenger traffic.
However Herdman still urged caution ahead of the start of the Assembly of Presidents.
“Whilst the outlook for continued passenger growth looks positive… there is continued pressure on airline leaders from the region who are endeavouring to boost profitability to support future growth,” he concluded.
The AAPA Assembly of President will gather the leaders of the region’s major airlines for two days of public and closed-room discussions about the issues affecting the industry.