Asia's recovery and the global balance October 1999

Further evidence is emerging of a continuing recovery in the Asia/Pacific market. The key question now is: can the recovery be sustained and so support the global supply and demand balance?

AAPA statistics for June 1999 showed a 8.8% annual increase in international RPKs, pushing the average load factor up to 72.8%. This was the ninth consecutive month of positive traffic numbers.

Airline stocks are acting as lead indicators of a return of business and consumer confidence to the region. Over the past 12 months Qantas has outperformed its local market by 68%, Korean by 67%, Thai by 60% (and the government has confirmed a part–privatisation target date at the end of this year) and Cathay by 25%.

Although the main Asia/Pacific airlines have some 120 widebodies on firm order (about 15% of the current fleet), a relatively modest amount is due for delivery in the period up to the end of 2000 — 37 747s, 777s and A330/340s and MD–11s, equating roughly to 4.5% of supply.

The logical strategy from the Asian carriers’ perspective would be not to add any more capacity above this level, but to attempt to push yields back up from their still very depressed levels. From the perspective of US and European airlines the optimal situation would be for the Asian carriers to lease back a significant amount of capacity from the transatlantic routes. Lessors too are hoping for an increase in demand for 777–types which, despite their key role in airline downsizing strategies, are proving quite difficult to place at the moment.

The North Atlantic, in physical supply/demand terms, does not look too bad at the moment — 13% capacity growth for AEA airlines was almost matched by 12% traffic growth in the first six months of this year. But a worrying situation is developing in the South/Mid Atlantic market — which is now 36% the size of the North Atlantic in terms of RPKs — where capacity growth of 14% is almost double that of traffic growth, and load factors have dropped four points.