Several Asia Pacific airlines are reporting worrying declines in average load factors as the year progresses, in a sign that rising travel costs and a slowing world economy are have an impact on demand.

Singapore Airlines, which expanded capacity (ASKs) by 9.5% in Jun-08, reported a 3.2 ppts reduction in load factor to 79.2%. Load factors in all regions declined, as the airline added significant amounts of capacity “following the delivery of a number of new aircraft in recent months after earlier delayed deliveries”. The airline added the Americas route region registered a decline of 3.8 percentage points, “off a very high base, while China traffic was affected by the negative travel sentiments after the Sichuan earthquake."


Asia Pacific carriers’ monthly passenger number growth (% change year-on-year): Jan-08 to Jun-08


CX: Cathay Pacific, SQ: Singapore Airlines, CZ: China Southern, NH: All Nippon Airways, CA: Air China MU: China Eastern, BR: EVA Air
Source: Centre for Asia Pacific Aviation & Company reports


Mainland Chinese carriers reported further steep declines in load factors in Jun-08, although the demand slowdown preceded the Sichuan earthquake, and is attributed to the “Olympics effect” of tougher security measures, as well as other weather events at the start of the year. But the underlying Chinese economy is slowing, and a 50% increase in fuel surcharges this month creates a challenging outlook for the airline sector. That China Southern has made the rare move of cutting executive salaries – to show leadership in cost-cutting efforts - shows the situation is concerning.


Asia Pacific carriers’ monthly passenger load factor growth (percentage points change, year-on-year): Jan-08 to Jun-08

Source: Centre for Asia Pacific Aviation & Company reports


Cathay Pacific recorded a stunning 16% year-on-year increase in capacity for the month of Jun-08, taking the year-to-date increase to 14.3%. A Cathay spokesman noted, “we have added a lot of capacity since last year, particular to India, Australia and North America, so for passenger growth to fall only marginally behind capacity growth is a creditable performance”. A creditable performance perhaps, but a warning that earnings would be disappointing this year suggests Cathay’s impressive growth could be occurring at the expense of yield, while fuel costs are soaring.


ASKs vs ASK growth for the six months ended 30-Jun-08



Source: Centre for Asia Pacific Aviation & Company reports


The Association of Asia Pacific Airlines (AAPA) stated last week that the cost of travel has risen sharply and that this threatens to undermine further growth. Director General, Andrew Herdman warned that while Asia Pacific air traffic has been holding up relatively well, “there are worrying signs that the global economy may be reaching a tipping point”.

He added, a future in which sky-high oil prices are “the new normal” will have “far-reaching implications for the structure of the industry”, with the effects also being felt by airports and other aviation service providers. Mr Herdman urged the entire industry to work together to achieve further efficiency improvements, while some “tough decisions” would be demanded of airlines, including cutting back unprofitable routes, retiring old equipment whilst maximising utilisation of newer more fuel-efficient aircraft and reviewing staffing levels in anticipation of slower growth or declining demand.