Every quarter the International Air Transport Association (IATA) publishes annualised forecasts of air traffic volumes based on current trends. In its June forecast, it has revised the figure for Asia Pacific traffic up from 12 per cent to 16.2 per cent. This is expected to deliver a USD2.2 billion profit; more than double the previous forecast of USD900 million; a major reversal of the USD2.7 billion loss recorded in 2009. (Source: Centre for Asia Pacific Aviation).

By comparison, global traffic growth forecasts were +7.3 per cent in March and +10.2 per cent in June. The Asia Pacific region is clearly well ahead of the play.

However, CAPA also showed that despite these forecasts airlines remain amongst the businesses most vulnerable to external factors beyond their control, such as volcanic eruptions and domestic political upheavals (e.g. red shirts in Thailand; riots in Kyrgyzstan), and other miscellaneous adverse weather and economic circumstances.

Share prices are normally a good indicator of trading conditions, and the stocks of Asian airlines from China to Thailand have been all over the shop as the world has dragged itself out of recession. As of today, only Asiana of South Korea and China Airlines have improved their market valuations; Malaysian Airlines and Cathay Pacific are neutral; and Thai Airways and Air Asia both show net declines.

For THAI the Bangkok riots have been a disaster, which is a pity as the airline was doing very well up until May. Its EBITDA (earnings before interest, tax, depreciation and amortisation) for the first quarter of 2010 was 23 per cent, or USD353 million. This was the same as the first quarter of 2009. Profitability increased by 2 per cent, to 21 per cent, over the same period. Then disaster struck. Blood ran in the streets of Bangkok. For now the red-shirted genie is back in the bottle, but recovery for the airline remains elusive.

The passenger is benefitting from all of this volatility. For example between October and November last year, AirAsia X, the long-haul low-cost carrier from the AirAsia group, was offering return fares (including taxes) from Australia to London for around 6,000 THB. That is about the same price full-service carriers are charging for flights between Phuket and Bangkok.

In other news, Indonesia’s national airline Garuda is again flying into European skies after a six-year break. The enforced absence was due to the airline being in the European Union’s ‘black book’ because of what the EU euphemistically termed ‘lack of safety oversight’. With the new dynamic President and CEO, Emirsyah Satar at the helm (should I say joystick?), Garuda made a record profit of USD125 million (4 billion THB) in 2009. Garuda has become a serious player in Asia Pacific and this is underlined by its joining the Skyteam alliance. They look likely now to give regional carriers like THAI a run for their money.

Overall, the prospects for the airline industry are looking better than they have for some time, but nobody in the business is getting too excited. It would only take one ‘force majeure’ to halt this fragile recovery.

Carriers like Emirates out of Dubai, while not strictly in the Asia Pacific region, are leading the way. They’ve purchased 32 new Airbus A380 aircraft worth US11.5 billion. This takes total orders for the giant aircraft to 90. Clearly this massive capacity is the way of the future. In theory the A380 could take up to 800 passengers across a double deck, but in practice the airlines which already fly them like Singapore Airlines and Lufthansa of Germany, configure the seating for 400-500 souls. Increasingly, the major airlines are concentrating on the more lucrative Club and First Class sector of the market. Competition, though, is stiff so the offerings are becoming more exotic and this takes space – lots of it. Lie-flat seats and even individual ‘compartments’ are now available for the rich and famous.

China remains a magnet for small airlines like Tiger Airways, a mere sparrow in the skies over Phuket, which leads the way in opening more routes to Chinese destinations.

The airline alliances also continue to gobble up new members. Star Alliance, the world’s largest, recently took in TAM Airlines of Brazil as its 27th member. They have more airlines in their sights. As already mentioned, Garuda is set to join Skyteam, and Kingfisher Airlines (one of India’s leading private sector airlines) has been invited to join Oneworld, which includes British Airways and Qantas. Both of these, of course, fly to Bangkok.

Alastair Carthew is a writer, broadcaster and public relations adviser living on Phuket.
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