Jetrader - May/June 2011 - 23

State of the Regions

Asia Pacific—Leading the Industry Forward
To ﬁnd out the latest on the state of the aviation industry in the emerging Asia Paciﬁc market, Jetrader spoke with Derek Sadubin, chief operating ofﬁcer of leading aviation intelligence provider, Centre for Asia Paciﬁc Aviation (CAPA), which publishes at www. centreforaviation.com. Can you tell us about airline development in this region? What kind of growth should we expect in the next 5-10 years? Who are some of the emerging leaders? Asia Paciﬁc airlines are leading our industry forward by virtually every metric, be it trafﬁc, ﬂeets, earnings, alliance development, investment and so on. It is an exciting place to be—and those on the periphery, in the mature markets, are all trying to tap into Asia Paciﬁc’s growth potential as a lifeline to the future. There are deﬁnitely some standouts—the Chinese airlines lead the world in terms of market capitalization. At the start of March 2011, Air China’s market cap exceeded the combination of UnitedContinental, JetBlue, Hawaiian Air, AirTran, US Airways, American Airlines, Republic Airways and Skywest. Air China, China Eastern and China Southern had a combined capitalization some 20 percent above Lufthansa, IAG (BA-Iberia), Air-France-KLM, Ryanair and easyJet. By enterprise value (EV), Air China is still some 50 percent higher than second biggest, Delta. By 2014, Asia Paciﬁc will account for 30 percent of all passengers, followed by North America at 23 percent. Of the 800 million new passengers who will ﬂy by 2014, 360 million of them—or nearly half—will be in the Asia Paciﬁc. And 214 million of those will be in China alone, according to the airline industry body. Asia Paciﬁc carriers are expected to have the largest collective proﬁt in 2011 at (a still modest) USD3.7 billion, and the highest operating margins, at a projected 4.6 percent, according to IATA. This is down substantially from the USD7.6 billion the region’s carriers made in 2010 and from the previously forecast USD4.6 billion for 2011, thanks to rising oil prices and relatively low level of hedging by the region’s major airlines. But the fact that Asian airlines are still expected to be proﬁtable amid strong growth rates and heightened input costs is a positive sign. How has the earthquake and tsunami impacted commercial aviation throughout this region and what will be the lasting effects? Is there any indication of how long it will take to return to normal operating levels? The Japanese situation is rapidly evolving, but the success of the recovery effort will have signiﬁcant ramiﬁcations for local and global aviation. We are seeing some fairly dramatic short-term effects, with schedule cutbacks reﬂecting quite signiﬁcant drops in inbound and outbound trafﬁc. Foreign arrivals at Narita were down 60 percent in the two weeks following 11 March. The country’s USD62.5 billion aviation market accounts for some 6.5 percent of worldwide scheduled trafﬁc and 10 percent of the industry’s revenues, according to IATA. It is an important component of the global premium air traveler market and big generator of outbound tourists for the worldwide tourism industry. It is likely that there will be a substantial reduction in travel to Japan, at least in the short term, as uncertainty about nuclear fall-out persists. Additionally, Japan’s reﬁneries produce three to four percent of global jet fuel supply, some of which is exported to Asia. According to IATA, some of this reﬁnery capacity has been lost due to damage caused by the earthquake, which could lead to higher jet fuel prices. The fortunes of the Japanese air travel industry are not likely to improve until the effect of a reconstruction rebound is felt in the second half of the year. In which of the countries in Asia Paciﬁc are we seeing the most growth in aviation? Why? China overtook Japan last year as the world’s second-biggest economy behind the United States, and its rise is stimulating strong aviation demand. Indonesia’s international aviation market is also expanding rapidly.

Chart 1: International capacity (seats, millions) to/from Asia Paciﬁc countries: 2010 vs 2009

Source: Centre for Asia Paciﬁc Aviation & OAG FACTS

Domestically, China predominates. Japan is a distant second and India has overtaken Australia as the third-largest market. Indonesia is in hot pursuit. Jetrader 23

http://www.centreforaviation.com http://www.centreforaviation.com

Jetrader - May/June 2011

Table of Contents for the Digital Edition of Jetrader - May/June 2011