AFP - 2 hours 44 minutes
ago
SINGAPORE, Oct 30, 2008 (AFP) - Asian airlines face bleak
business in the next two years amid a global recession and must
deal with the challenges or risk extinction, an industry conference
was told Thursday.
Carriers from Asia and the Middle East, which are generally seen
as having healthier balance sheets, will not escape the financial
turmoil which has spilled over to affect the global economy,
speakers at the conference said.
"Looking ahead, I think we are facing, frankly, a couple of dark
years for the aviation business," said Peter Harbison, executive
chairman of the Centre for Asia Pacific Aviation consultancy.
"The thing we all realise by now is this is not just another
downturn," he told the Aviation Outlook Asia conference in
Singapore.
Harbison warned against airlines being complacent, saying any
carrier that refused to take the challenges seriously would be at
risk.
"There is no airline in this region -- and that probably goes
for most of the world too -- that can be confident they will still
be here this time next year," Harbison said.
"This is going to be a watershed, if it's not already, not just
for the industry but for the global economy... Any airline that
thinks otherwise is seriously at risk."
Apart from having to cope with slowing travel demand,
particularly in the lucrative corporate travel segment, airlines
also must deal with volatilities in foreign currencies which will
impact their hedging strategies, said Harbison.
Currency instability "has created massive problems for airlines
in terms of their risk management, in terms of their hedging," he
said.
"If that stays as an issue, it is going to continue to be highly
disruptive for the treasuries of the airlines."
Andrew Herdman, director general of the Association of Asia
Pacific Airlines, told the conference the mood in the industry had
dramatically altered in the last few months.
"You saw the way everything has fallen off the cliff... so the
mood has changed," Herdman said.
He said the surge in oil prices to record levels of above 147 US
dollars in July was "killing airlines' profitability".
While prices have since halved to about 70 dollars a barrel, the
revenue outlook for carriers remained extremely gloomy.
"It's still the number one cost for almost every airline in the
world," Herdman said of fuel expenses.
Despite the gloomy environment, Damien Horth from Swiss banking
giant UBS sees a window of opportunity for airlines to undertake
changes that will result in a stronger industry.
"There's not a lot of industry change during the boom times...
We have a big opportunity for change in the aviation industry given
what's going on right now," said Horth, head of transport research
at UBS.
"It does need to change more through this downturn," he said,
adding he felt there were too many subsidies being given out within
the sector.
Horth also said the balance sheets of the region's airlines "are
actually quite weak", with the exceptions of Singapore Airlines and
Hong Kong's Cathay Pacific.
"2009 is going to be very, very difficult indeed," he said.
