Asia Pacific Airlines Take Measured Approach to Growth

Most economies across the Asia-Pacific region continue to grow relatively strongly, with the region’s dynamic and innovative airlines having seen freight traffic increase significantly over the past 12 months. Prospects for further expansion remain positive, with Asia already the world’s largest aviation market.

But delegates gathering for this year’s Assembly of Presidents of the Association of Asia Pacific Airlines (AAPA) in Tokyo, agreed that a measured approach was needed to address anticipated challenges.

Although Asia-Pacific airlines continue to invest heavily in the latest generation of fuel-efficient aircraft to meet traffic growth demands, there is an increasing concern about the need for corresponding long term investments in related aviation infrastructure, including airport terminals, runways and air navigation services. Governments have key roles to play in coordinating such investments and ensuring that the necessary regulatory oversight of the industry keeps pace with growth.

The environment remains another key issue for Asia-Pacific carriers, with the industry committed to sustainability targets including 1.5 percent per annum fuel efficiency improvements and the development of a global market based measure to achieve carbon-neutral growth from 2020 onwards.

Analysts maintain that, for the most part, the air cargo industry is working closely with governments through the International Civil Aviation Organization (ICAO) to deliver on these targets. In what has been described as a “four pillar” strategy, stakeholders are implementing technology, alternative fuels, operations, and infrastructure improvements to prevail over existing challenges. A global market-based measure utilizing carbon offsets, may also be in the offing.

No less important as a priority for many Asia Pacific carriers, though, is an early return to profitability. Collectively, Asian carriers have seen a dip in yields this past year as a result of intense market competition and signs of surplus capacity.

In 2015, air cargo providers will be carefully reviewing their fleet and network development plans, while maintaining a tight rein on costs in a bid to restore profitability and sustain further investments for the future. On a more positive note, after many years of stagnant market conditions in the wake of the global financial crisis, air cargo volumes are ramping up, which accounts for 38% of the global air cargo market.

“With Asia continuing to rise on the global stage, the long term prospects for the region’s carriers are still very positive,” says Andrew Herdman, Director General of the AAPA.

An equally bullish forecast was made by Tony Tyler, Director General and CEO of The International Air Transport Association (IATA). At the same forum, he observed that the Asia Pacific is home to many world class hub airports. But as governments continue to pursue airport expansion programs across the region, he calls for caution when engaging private sector financing.

“Private capital is not a panacea,” he says. “To be successful it must have a strong governance structure embedded in regulation that keeps the consumer in mind when setting parameters on price and quality. It must set reasonable expectations on returns – in line with airports being public utilities, not hedge fund investments.”

Tyler maintains that there must also be reasonable limits for any royalty or concession-fee collected by the government.

“And the governance structure must institutionalize robust cost-benefit analysis and user consultation in the evaluation of capital expenditure plans,” he adds.

In his Tokyo address, Tyler made special reference to the Philippines, Indonesia and Vietnam – all of which have major challenges to meet even existing demand with the current infrastructure. But he also noted the need to define a strong regulatory framework as part of discussions of privatization of airports in Japan.

Finally, both IATA and the AAPA are reading from the same piece of music on safety. In the wake of two disastrous airline accidents last year involving regional players, cargo executives launched an initiative of the “Asia-Pacific Regional Aviation Safety Group,” bringing together 20 governments and 12 international organizations to address common risks.

The gathering of “big data” will also no doubt be key in this enterprise, as IATA’s Operational Safety Audit (IOSA) is on its way to setting safety standards in the Pacific Rim. With many analysts predicting that Asia Pacific air cargo will account for two thirds of global growth in the next 20 years, some 400 global carriers have already bought into this program.

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