Airlines in the Asia Pacific region have become key global players and should have a greater say in industry issues, according to Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA). “The growing influence of Asia Pacific needs to be matched by stronger engagement in key international policy issues,” he told AIN.

In Herdman’s view, because the area has been able to show growing economic leadership, it also must be ready for increased political activity on broader policy issues. “AAPA will continue to engage with industry associates and other stakeholders to ensure that Asia Pacific views are given proper weight,” he said. “Overall, notwithstanding future challenges, the industry can look forward with confidence.”

Fast growing markets in China and India have boosted the region’s air transport stature. Airports Council International figures that indicate international passenger traffic to, from, and within Asia Pacific increased by 9.7 percent in 2006, compared with a worldwide rate of 6.8 percent.

The region had a 27-percent share of 2006’s worldwide 2.1 billion scheduled airline passengers and a much larger 41 percent of the 16 million metric tons of global air cargo. “If these trends are sustained, within the next decade, Asia Pacific will have the largest share of passenger traffic,” said Herdman.

AAPA’s 17 member carriers reported $3.4 billion operating profit on revenues valued at $83 billion in 2006-07. The airlines’ almost 1,500-strong fleet transported 285 million passengers–just over half of them on domestic routes–and 10 million metric tons of freight. The group accounts for 18 percent of worldwide passenger totals and 32 percent of cargo traffic.

Herdman sees growth prospects in Asia Pacific as remaining “bright,” although he wants to see sustained progress “truly liberalize” the marketplace. AAPA’s share of world passenger traffic will continue growing despite highly diverse regulation across the region. “We need to work toward greater harmonization, and speak with a common voice on wider international issues,” he said.

 An important step toward permitting operators to compete globally would be “relaxation of national ownership and control rules,” said Herdman, who is critical of U.S.-style “Open Skies” agreements. He believes these arrangements–typically deleting restrictions on capacity, destination, frequency, and pricing–are well short of genuine liberalization. “Almost without exception, domestic markets remain basically closed to foreign competition,” he said.

AAPA sees the recent European Union-U.S. agreement as no more than a “modest step in the right direction,” since it excluded any movement on limits covering airline ownership and control. “The U.S. domestic market, the world’s largest, remains effectively closed,” said Herdman.

He has applauded a regional initiative to deregulate airline services between four Asia Pacific Rim countries and the U.S., but laments the fact that it has not led to other such deals elsewhere in the region. The 2001 APEC Multilateral Agreement on Liberalisation of International Air Transport, involving Brunei, Chile, New Zealand, Singapore and the U.S. has been “probably the most ambitious step” toward a multi-
region liberalization template, he said.

More recent moves have included the so-called ASEAN roadmap for deregulation between member countries’ capitals by this year and on all services among those states by 2015. Different arrangements are being prepared between ASEAN subregions, while talks continue with China, Japan and Korea.

AAPA officials have praised a recent Open Skies agreement between Singapore and the UK for its “fresh thinking” on ownership and control. The “landmark deal,” they said, is particularly noteworthy since it provides full cabotage rights to designated airlines on both sides, explained Herdman.

Nevertheless, despite such reservations about restrictions, the region’s airlines retain long-term optimism–amply demonstrated by their orders for substantial fleets of aircraft, with the Asia Pacific forecast to require more than 10,000 new aircraft by 2026. Herdman reflected that this optimism prevails following a recent period of poor profitability. “Operators rebounded in recent years, particularly after the impact of the severe acute respiratory syndrome threat, but profits have been disappointing.”

This lack of profitability is at least partly a consequence of carriers’ absorption of higher fuel prices in 2005 and 2006. Nevertheless, Herdman warned that AAPA carriers face the perennial problem of more than covering their costs. “The challenge is to convert robust growth in travel demand into revenues and, most importantly, profitability to pay for further investments in aircraft and infrastructure.”

Unveiling AAPA members’ 2006-07 financial results last November, Herdman said the year had seen a significant profit improvement. “Net income tripled, while operating profit increased 69 percent to $3.7 billion,” he said. Strong revenues–up 15.4 percent–outstripped a lower growth of 14.1 percent in overall costs.

Asia Pacific operators reported positive earnings, generating $2.8 billion in net profit, although there was wide variation in profitability. “AAPA airlines earned $3.4 billion–a profit margin of 4.0 percent and a 73-percent improvement over the previous year,” the report noted. Two low-cost carriers–Air Asia and Virgin Blue–reported “sharply improved” profitability. But Herdman pointed out that good general performance was offset by marginally loss-making mainland China airlines that “faced difficulties in translating robust traffic and revenue growth into profitability.”

Consolidated AAPA operating revenues climbed 13.1 percent to $83.4 billion (against an 8.3-percent revenue growth 12 months earlier), driven by a 5.7-percent increase in revenue metric-ton kilometers and 7.0 percent yield growth. Operating expenses went up 11.1 percent, to $80.1 billion.

Fuel accounted for the highest cost ($23.2 billion), representing 29 percent of total airline expenses and a 17-percent increase in fuel unit cost, to $0.14 per available metric-ton-kilometer after allowing for increased traffic volume; nonfuel costs went up 1.8 percent. Offsetting the higher operating cost, staff unit costs fell 3.4 percent.

The growth in 2006-07 AAPA traffic exceeded that in capacity, generating an overall load factor 0.5 percentage points higher at 68.5 percent, largely a result of passenger load factors up 1.9 percent to a record 75.1 percent. The yield increase from passenger traffic (up 9.4 percent) was three times that achieved from cargo operations (up 3.1 percent) because of significant capacity growth.

How the Fleets Stack Up

The Association of Asia Pacific Airlines currently lists 17 members operating a varied fleet (see box). Those operating the greatest numbers are Japan Airlines, 215; All Nippon Airways, 155; Qantas Airways, 124; Korean Air, 123 and Cathay Pacific Airways, 107. In the 12 months to November 2007, the AAPA mainline fleet increased by 14 (1 percent) to 1,383 aircraft.

Boeings are by far the most populous aircraft (73 percent of the AAPA fleet), although there will be much more balance once recent new orders have been fulfilled. The AAPA members’ backlog in November was more than 440 aircraft for delivery before 2013, including more than 270 Airbus A350s and A380s and Boeing 787s.

The most common large aircraft in the fleet–252 total–is the Boeing 777. The -300ER variant is flying with ANA, Cathay Pacific, EVA Airways, JAL and Singapore Airlines. Additional 737s are to be delivered to Air New Zealand, Korean Air and Philippine Airlines, replacing older 747-400 passenger models, many of which are being converted for cargo use. The average age of aircraft in the AAPA fleet is 9.65 years.