Asia-Pacific airlines barely break even despite traffic growth

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Singapore_Airlines_CargoAir carriers in Asia-Pacific posted flat net profit in 2014 despite higher revenue and traffic growth for both passenger and cargo operations, according to new data released by the Association of Asia Pacific Airlines (AAPA).

Regional airlines operated at close to break-even in 2014, with profit down by a slight 0.05% compared to a net profit of US$2.2 billion reported for 2013.

Explained AAPA: “Downward pressure on airfares from stiff competition and excess capacity, as well as the effects of high fuel costs and Asian currency volatility, were the major factors leading to the decline in airline profitability, despite further steady growth in both passenger numbers and air cargo traffic volumes.  Restructuring costs also acted as a drag on the overall results.”

Overall operating revenues amounted to $176.6 billion for the calendar year, 1.9% more than the $173.4 billion recorded in 2013.

Passenger revenue increased by 1.4% to $135.4 billion, driven by an encouraging increase in traffic demand, which more than offset the fall in passenger yields.

Although air cargo markets were also not spared from persistent yield pressure, the upswing in demand helped lift cargo revenue to a combined total of $20.8 billion for the year, a 2.7% increase compared to 2013.

During the year 2014, international passenger traffic, in revenue passenger kilometers terms, grew by an encouraging 4.7%. International air cargo traffic, measured in freight tonne kilometers, also registered a welcome 5.3% increase following several years of weak cargo market demand.

Combined operating expenses climbed 2.5% higher to $173.8 billion, driven by a 4.5% increase in non-fuel expenditure, led by higher aircraft operating lease expenses as well as landing fees and en-route charges. Fuel expenditure declined marginally, by 1.1% to $60 billion, on the back of a 7.8% decline in global jet fuel prices to an average of $113 per barrel for the year. As a result, the share of fuel expenditure as a percentage of total operating costs declined by 1.3 percentage points to 34.5% in 2014.

“Asia Pacific carriers faced a number of significant challenges in 2014, with capacity growth slightly outpacing market demand leading to intensely competitive market conditions across all segments of the industry,” said Andrew Herdman, AAPA director general. The strengthening of the dollar against many Asian currencies also impacted on travel patterns as well as increased dollar-pegged payments.

Still, said Herdman, the region’s carriers managed a thin operating margin of 1.6%, down from 2.3% in 2013.

Looking ahead, Herdman forecasts the industry environment to remain highly competitive, even though airlines continue to review their route networks and closely match capacity with the expected growth in demand.

Lower oil prices should boost travel demand, but their financial impact on individual airlines will vary depending on their respective fuel hedging policies.

“Overall, Asian carriers remain very focused on efforts to restore margins through a disciplined approach to managing costs, further productivity improvements, and ongoing investments in route development and customer service enhancements,” said Herdman.

The AAPA used financial data from 26 Asia-Pacific-based carriers to come up with its 2014 analysis. Headquartered in Kuala Lumpur, Malaysia, the AAPA is the trade association for scheduled international airlines based in the Asia-Pacific region. Collectively, the region’s airlines carry 1,012 million passengers and 19 million tonnes of cargo, representing one-third of global passenger traffic and two-fifths of global air cargo traffic, respectively, and thus play a critically important role in the ongoing development of global aviation.

Photo: leginmat