APAC airlines cautious about growth heading into 2017

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Even as the stable growth of Asia-Pacific airlines over the past few years is expected to continue into 2017, uncertainties arising from macroeconomic forces, fluctuating crude oil prices and the strengthening US currency, among other things, are expected to keep predictions muted.

The Association of Asia Pacific Airlines (AAPA) director general Andrew Herdman said that even though global passenger traffic maintained its more than 27 per cent growth this year, it is extraordinary, given the fragility of the global economy.

In fact, the low interest rate is a “warning signal” of a weak economic outlook, with international trade no longer outpacing GDP growth for the first time in 15 years, Herdman pointed out.

Still, low crude oil prices are keeping travel very affordable today, he added, with Asia-Pacific airlines accounting for 32 per cent of global passenger traffic in 2015.

But “how far those oil prices will stay at those levels we don’t know”, said Endau Analytics founder Shukor Yusuf, saying that it’s hard to make a projection for 2017 as things can change very quickly given current geopolitics.

While Cebu Pacific president and CEO Lance Gokongwei is bullish about the industry going into 2017 as the LCC is enjoying strong domestic and international demand, Malaysia Airlines CEO Peter Bellew foresees a shakeup and consolidation among LCCs “when fuel price inevitably goes back up”.

Bellew pointed out that there are too many LCCs and that they don’t have critical mass, which is fine for the next few years, but could be unsustainable afterwards due to excessive cost.

Uncertainty also arises from the continuing strength of the greenback. In the Philippines, for instance, the peso is edging near 50 pesos against the dollar, the lowest in eight years.

Thai Airways president Charamporn Jotikasthira highlights another pain point – that of limited infrastructure to cope with rising passenger demand even as visa-free facilities boost traffic.

When Thailand adopted the visa-on-arrival scheme for Chinese travellers, arrivals spiked, but immigration facilities and carousel baggage systems couldn’t cope with the increase.

“For a good 15 years we have experienced double-digit growth of passengers but infrastructure is not keeping up,” said Martin Eran-Tasker, technical director at AAPA.

This is changing, however, as he observes more airlines and airports investing into the latest technologies to make things more efficient and drive costs down.

Herdman concludes that the Asia-Pacific market will continue to lead future growth in air travel, with the region representing 40 per cent of future aircraft orders and associated infrastructure requirements.

The challenge for Asia-Pacific airlines is the ability to effectively capture that growth.

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