Jetrader - Summer 2014 - 21

the redeployment of excess capacity by
some pan-Asian airline groups, resulted in
overcapacity and yield declines across
most major markets in Southeast Asia in
the past year. Operators in the Asia Pacific
region accounted for half of all passenger aircraft delivered globally in 2013.
Traffic responded well to this high capacity growth, though clearly at the expense
of declining yields. Some carriers have
recently taken action to defer orders or
slow growth or have worked with manufacturers to convert short-term deliveries into
larger future orders. However, given the
competitive dynamic across the region and
airlines' capacity growth plans, including
in particular the continuing deployment
of large order books across Indonesia,
Malaysia and Thailand, the short-term outlook for yield growth in Southeast Asia
remains subdued.
Similarly, in Japan and Korea, the
emergence and growth of low cost carriers (LCCs) is creating downward pressure on yields, adding to the competition
from high-speed rail in these countries. In
China, slowing economic growth and the
government's crackdown on spending by
officials also resulted in yield declines. A
move by the Civil Aviation Administration
of China (CAAC) to promote the growth of
LCCs may help to improve the efficiency of
the industry overall but is not expected
to have a significant impact on yields in

the short term due to the small size of
this sector to date. Fierce competition for
market share is being waged in Australia in
what is effectively now a duopoly market.
Aggressive pricing and continued capacity
growth amid weaker underlying demand
has depressed yields and resulted in heavy
losses.
The Indian market is set to be stimulated in 2014 by the launch of two new
carriers, made possible by the amendment
of India's Foreign Direct Investment (FDI)
rules to allow 49 percent foreign airline
ownership. The amendment facilitated
Etihad's recent investment in Jet Airways,
and reports that other Indian airlines are
also in negotiations suggests that the
majority of Indian carriers may soon be
controlled by foreign airlines.
More challenging operating environments often lead to consolidation, and
nowhere has this been more evident than
in the Philippines in the past year where
an intensely competitive dynamic spanning
a number of years finally resulted in the
consolidation of six brands to only three.
These developments present a brighter
outlook for the market, and in particular
the dominant Cebu Pacific. As competition
intensifies in several markets across the
wider region, consolidation is expected to
continue to be a prevalent theme.
The extent of 2013 full-year losses for
some of Asia's legacy flag carriers highlight

the challenges they face, making the case
for more comprehensive reform programs all
the more pressing, despite positive steps
already taken to date.
The marginally lower, and less volatile,
average fuel price over the past 12 months
offered some relief for airlines by comparison to prior years, though increased
geo-political risk arising from the crisis
in the Ukraine has put upward pressure on
prices recently. The elevated fuel price
level that has prevailed since 2011 continues to challenge carriers' operational
efficiency across the board and drives
appetite for new, more fuel-efficient aircraft types.
All told, slowing growth in some
key markets (e.g. China, Indonesia),
on-going concerns in relation to currencies, an intensifying competitive
dynamic (including the planned launch
of a number of new carriers), and shortterm overcapacity continue to suggest
that airline earnings in 2014 across
the Asia Pacific region may struggle to
show a significant improvement over
2013. However, many of these challenges are likely to lead to opportunities for the well-capitalized and well-run
airlines. Accordingly, we still believe
that the region will come to offer financiers/investors and lessors solid business
opportunities with strong and credible
counterparties.

EXECUTIVE FLIGHT MANAGEMENT
TRANS AMERICAN CHARTER, LTD.
Moving transport aircraft into
business aviation for 27 years!
Phone : (630)-466-2010 Fax : (630)-466-2018
E-mail : info@efmtac.com

www.efmtac.com
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