THE conventional wisdom that Asia-Pacific and Middle Eastern carriers will be relatively unscathed from the global financial turmoil seems to be falling apart as discretionary and business spending comes under pressure.
The 17 members of the Association of Asia Pacific Airlines (AAPA) carried 3.7 per cent fewer passengers in August than a year earlier, amid visa controls in the lead-up to China's Olympics and a slowdown in Japan. This followed a 0.5 per cent drop in passengers in July.
As a result, Asia Pacific carriers filled just 76.7 per cent of seats in August - below the international average of 79.2 per cent.
'For the first eight months of the year, AAPA international passenger traffic (in revenue passenger km terms) grew just 2.5 per cent - well below the 4.2 per cent growth seen for the whole of 2007,' says AAPA director-general Andrew Herdman.
The question now is how bad things can get if business and discretionary spending plunge as companies are whacked by the financial crisis. Anecdotal evidence at Asian airport terminal retailers already suggests a slide in sales of high value and luxury items.
But it is on the cargo front that Asian carriers appear to be taking the biggest hit. The average monthly fall in their international cargo traffic was 5.3 per cent in the June-August period - the steepest fall since late 2003 and worse that the average international fall of about 2 per cent.
Industry insiders fear the worst is yet to come.
Giovanni Bisignani, director general of the International Air Transport Association (Iata), notes that with 35 per cent of the world's cargo transported by air, the three-month decline - led by Asia-Pacific markets - is a clear indication that global trade is slowing down, and could get worse amid the expanding financial turmoil.
Other industry observers say that gains from fuel falls are being quickly eroded by deteriorating economic conditions. 'So long as banks are nervous about risk, money gets tighter and tighter,' says the Centre for Asia-Pacific Aviation. 'Businesses cannot obtain credit. So, for example, consignees of freight shipments are unable to finance their purchases and need to pay in advance out of cash flow. This inevitably places pressure on them, slowing freight movements.'
Regional airline stocks - though not as badly hit as those in the US and Europe - are already feeling the impact of the uncertain operating conditions.
Singapore Airlines, often said to have the strongest balance sheet in the business, has held up relatively well, its stock slipping just 2 cents to $14.22 on Tuesday. Nevertheless, it is down 18 per cent this year.
Qantas has given up 42 per cent per cent of its value since January, while Cathay Pacific is down 35 per cent. But they have done better than many European and American airline stocks, which have fallen by two-thirds this year.
With no sure sign that the US banking farce will be fixed soon, the outlook seems more uncertain than ever before for the global aviation industry. And contrary to popular belief, no region seems to be insulated.
This article was first published in The Business Times on October 2, 2008.
