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9/F Kompleks AntarabangsaJalan Sultan Ismail50250 Kuala LumpurMALAYSIA
Telephone +603 2145 5600Facsimile +603 2145 2500Email [email protected]
www.aapairlines.org
ASSOCIATION OF ASIA PACIFIC AIRLINES
2009annual report
Air New Zealand
All Nippon Airways
Asiana Airlines
Cathay Pacific Airways
China Airlines
Dragonair
EVA Air
Garuda Indonesia
Japan Airlines
Korean Air
Malaysia Airlines
Philippine Airlines
Qantas Airways
Royal Brunei Airlines
Singapore Airlines
Thai Airways International
Vietnam Airlines
AAPAMEMBERS
contentsFinancialResults
04
Introduction
03
ExecutiveCommittee
02
FinancialStatement
06
Traffic Trends
07
52nd Assemblyof Presidents
10
Safety
17
Regulation
14
AAPA Fleet2009
12
Environment
21
Innovation
24
Outlook 2010
28
Association of Asia Pacific Airlines2
executive committee
Chew Choon SengChief Executive
OfficerSingapore Airlines
Robert YangChief Executive
OfficerRoyal Brunei Airlines
Tengku Dato’ AzmilZahruddin
Managing DirectorMalaysia Airlines
Tony TylerChief ExecutiveCathay PacificAirways
Haruka NishimatsuPresident & ChiefExecutive OfficerJapan Airlines
annual report 2009 3
introduction
This period has been one of themost difficult and challenging forairlines in the history of aviation.Unfolding over the past two years,the bursting of the credit bubble inthe US housing market triggereda global financial crisis, whichin turn led to a worldwidecollapse in consumer confidence.Consequently, the world hassuffered a synchronized globaleconomic slowdown in 2009, of aseverity not seen since the 1930’s.
As a result, starting in mid-2008,airlines have experienced aprolonged and painful period ofweaker demand for bothpassenger and cargo services.With load factors falling, airlinerevenues took a double hit fromboth declining traffic and loweryields.
Air cargo dropped precipitously inthe fourth quarter of 2008, andbottomed out at year end, downalmost 30% in tonnage terms. In2009, we have seen a slow butsteady recovery in cargo volumes,regaining some of the lost ground,but rates remain depressed.
Passenger traffic continued todeteriorate throughout the firsthalf of 2009 and has only recentlybegun to show some signs ofstabilisation. Demand for premiumpassenger services has beenparticularly weak, as businessescut back on travel costs.
Airlines responded, as they haveto previous downturns, byprogressively reducing capacityalong with efforts to stimulatedemand through highlycompetitive fares and discountedtravel packages.
Aircraft utilisation fell, forcingsome retirements of older aircraft,whilst others were temporarilyparked. Lower aircraft valuations
added to pressures on airlinesand aircraft leasing companies.Airframe manufacturers went intothe downturn cushioned by multi-year order backlogs, but havebeen forced to negotiate deferrals,and a small number of ordercancellations, as the industryseeks to adjust to the loss of atleast two years of expectedgrowth. This process has not yetrun its course.
At the same time, airlines madestrenuous efforts to cutcosts. Initiatives to trim staffcosts included reductions inperformance bonuses, unpaidleave schemes and, as a lastresort, staff retrenchments.
Meanwhile, oil prices, despitefalling back from the peakreached in mid-2008, haveremained exceptionally volatile,ranging from US$40 to US$80per barrel so far this year. Anumber of airlines sufferedsignificant losses on fuel hedgingprogrammes as a result.
Given all these negative factors,most airlines have been reportingfinancial losses, with IATA
estimating that the global airlineindustry will lose US$11 billion in2009. Asia Pacific airlines havebeen particularly badly affected,given their traditional strongreliance on premium passengertraffic and the air cargo business,the two worst affected marketsegments. A number of carriershave taken steps to strengthentheir balance sheets through avariety of new financing initiatives,in order to ride out the crisis.
Despite the severity of thedownturn, aviation continues toplay a fundamentally positive rolein the global economy every day,keeping air travel safe, secure andaffordable, and linking people andproducts to markets across theworld.
Once again demonstrating ourcustomary resilience in the face ofadversity, we look forward to thehopefully brighter days that lieahead.
Andrew HerdmanDirector General
“This period hasbeen one of themost difficultand challengingfor airlines inthe history ofaviation.
“
Association of Asia Pacific Airlines4
financial results
The airline industry was hard hit by the severe globaldownturn, suffering net losses totaling USD16.8 billionin 2008, in marked contrast to the record net profit ofUSD12.9 billion achieved in 2007.
Soaring crude oil prices, sharply lower passenger andcargo demand and stiff competition all contributed tothe extremely challenging operating environment.Crude oil prices were exceptionally volatile, andaveraged USD97 per barrel in 2008. The globaleconomic recession undermined both passenger andcargo demand, which saw declines of 1.7% inpassenger numbers and a 6.6% fall in air cargotonnage.
By region, US carriers were hardest hit, recordinglosses of USD9.5 billion, more than half the global total.Asia Pacific airlines reported USD5.5 billion in netlosses. European airlines as a group, on the other hand,managed to remain profitable, reporting an aggregateUSD0.2 billion in net earnings.
Losses suffered by the three largest carriers in MainlandChina, inclusive of fuel hedging losses, totalled USD4.2billion, compared to a combined net profit of USD0.8billion recorded in 2007.
Asia Pacific-based low cost carriers also facedchallenging market conditions in 2008, with Virgin Blueand Air Asia reporting an aggregate net loss, includingfuel hedging losses, of USD242 million, compared to anet profit of USD286 million recorded in 2007.
AAPA OPERATING REVENUE
AAPA consolidated operating revenues increased by3.6% to USD100.1 billion, from USD96.6 billionreported in 2007. Passenger revenues were 7.1%higher at USD73.8 billion, whereas cargo revenuesdeclined by 7.2% to USD16.2 billion.
AAPA airlines recorded an 8.8% increase in averageyields to 88.5 US cents per revenue tonne kilometre(RTK), but this was not sufficient to compensate forsharply higher fuel costs.
140 -
120 -
100 -
80 -
60 -
40 -
20 -
0 -
-20 -
Operating Performance of Asia Pacific and AAPAAirlines 2008USD billion
Asia PacificAAPA
ExpensesRevenue Operating Profit
100.1
-1.2
101.2
124.2
-4.8
129.0
140 -
120 -
100 -
80 -
60 -
40 -
20 -
0 -
-20 -
AAPA Systemwide Operating PerformanceUSD billion
20082007
ExpensesRevenue Profit
96.66.2
90.4
100.1
-1.2
101.2
8 -
6 -
4 -
2 -
0 -
-2 -
-4 -
-6 -
-8 -
-10 -
-12 -
Airline Net Profit by Operator RegionUSD billion
2004 2005 2006 2007 2008
US Europe Asia Pacific Source : IATA
annual report 2009 5
OPERATING EXPENSES
Consolidated AAPA operating expenses rose by 12.8%to USD101.2 billion in 2008. Historically the largest costitem, fuel costs soared 44% in terms of unit costs to21.7 US cents per ATK as a result of the spike in crudeoil prices. Fuel costs accounted for 38% of total costsfor AAPA carriers. Non-fuel costs grew by 3.2% to 37.7US cents per ATK. Staff costs, the largest non-fuel costcomponent, declined by 7.5% to USD11.7 billion, witha corresponding 7.4% decline in averagecompensation per employee. Total unit cost was 59.4US cents per ATK, up 15.2% in 2008.
YIELD AND LOAD FACTORS
Average AAPA passenger and cargo load factorsdeclined by 2.1 pp and 1.9 pp respectively to 73.2%and 56.6%, as the decline in traffic demand outstrippedrelated capacity adjustments.
Overall, the average AAPA load factor was 66.4%,dipping below the breakeven load factor of 67.2%.
AAPA members’ overall yield improved 8.8% to 88.5US cents per RTK in 2008. The increase was mainlyattributable to higher passenger yields, up 10.1%,which more than offset the decline in cargo yields.
6.7
AAPA Systemwide Staff Compensation andUnit CostsUSD thousand
2004 2005 2006 2007 2008
Staff Unit Cost(US cents per ATK)
50.7 51.6 52.758.8
54.4
Average Compensationper Staff (USD thousand)
6.8 6.87.2
6.8
70 -
68 -
66 -
64 -
62 -
60 -
%
70 -
60 -
50 -
40 -
30 -
20 -
10 -
0 -
2004 2005 2006 2007 2008
AAPA Systemwide Overall Load Factor andBreakeven Load Factor
67.2
66.4
68.2
66.6
68.2
63.4
68.4
64.4
68.5
65.5
Overall LF
2007 2008
AAPA Fuel Costs as Percentage of Total Costs
29%
71% 62%
38%
Fuel
Breakeven LF
Others
Association of Asia Pacific Airlines6
financial statement
COMBINED AAPA MEMBER AIRLINES SYSTEMWIDE FINANCIAL RESULTSCalendar Years 2004 to 2008 (USD Million)
2008DESCRIPTION 2004 2005 2006 2007 2008 Growth
%
A. INCOME STATEMENT
OPERATING REVENUE 68,098 73,778 84,610 96,564 100,050 3.6Passenger 46,730 50,630 59,302 68,901 73,800 7.1Cargo 11,849 13,130 14,542 17,400 16,151 (7.2)Others 9,520 10,018 10,766 10,263 10,099 (1.6)OPERATING EXPENSES 64,130 72,069 80,911 90,394 101,243 12.0OPERATING PROFIT 3,968 1,709 3,699 6,169 -1,193 (119.3)Other Income (Expenses) 599 (144) 1,114 (1,031) (4,335) –NET PROFIT (LOSS) AFTER TAX 3,606 1,075 3,478 3,934 -4,803 13.1
B. BALANCE SHEET
TOTAL ASSETS 100,439 107,501 119,372 131,286 132,511 0.9Current Assets 23,400 26,552 30,451 34,380 31,735 (7.7)Cash and Bank Deposits 8,981 9,841 11,681 12,899 11,928 (7.5)Inventory 2,551 2,739 2,812 3,080 3,137 1.8Other Current Assets 11,867 13,973 15,957 18,402 16,670 (9.4)Long Term Assets 8,720 9,089 9,176 9,950 11,969 20.3Net Fixed Assets 63,344 66,864 73,666 80,252 81,110 1.1Other Assets 4,975 4,996 6,080 6,704 7,698 14.8TOTAL LIABILITIES 70,304 75,129 81,855 92,270 101,179 9.7Current Liabilities 25,636 29,069 34,822 40,975 45,510 11.1Long Term Liabilities 38,850 40,547 40,144 44,417 48,687 9.6Other Liabilities 5,819 5,513 6,888 6,878 6,982 1.5SHAREHOLDERS FUNDS 30,135 32,372 37,518 39,016 31,332 (19.7)
C. OPERATING STATISTICS
AVERAGE STAGE LENGTH (KM) 1,952 1,996 1,981 1,984 2,003 0.9AVERAGE FARE in USD 207 220 234 245 270 10.3PAX YIELD in US cents / RPK 7.6 7.9 8.8 9.6 10.5 10.1CARGO YIELD in US cents / FTK 25.9 28.0 29.7 33.1 33.3 0.5TOTAL YIELD in US cents / RTK 66.4 69.5 76.0 81.3 88.5 8.8UNIT REVENUE in US cents / ATK 45.3 47.3 51.9 55.5 58.7 5.8UNIT COST in US cents / ATK 42.7 46.2 49.7 51.9 59.4 14.4OVERALL LOAD FACTOR 68.3% 68.0% 68.4% 68.2% 66.4% (1.9)BREAKEVEN LOAD FACTOR 64.3% 66.4% 65.4% 63.9% 67.2% 3.3
SOURCE : MIWG Systemwide Financial Results
Notes : a) 2008 includes data from 17 member airlinesb) Currency exchange rates use the IATA mean rate for the corresponding 12-month period, except for VN datac) pp = percentage points
annual report 2009 7
traffic trends
“Starting in mid-2008, airlines haveexperienced a prolonged and painfulperiod of weaker demand for bothpassenger and cargo services.”
2008 was a tale of two halves. The first half of theyear saw AAPA carriers post a moderate increaseof 3% in international passenger numbers and RPK,with the passenger load factor holding steady at75.9% on carefully managed capacity. Traveldemand then weakened significantly as a result ofthe global economic slowdown. In the second halfof 2008, international passenger numbers tumbledby 7.0% whilst international RPKs fell by 5.9%. Theaverage passenger load factor fell by 3.8 pp to74.0%, despite a year-on-year capacity reductionof 1.1%.
For the first six months of 2009, the impact ofInfluenza A(H1N1) compounded the airlines’ woes,contributing to a 7.6% contraction in globalinternational passenger traffic in RPK termsfollowing a slight growth of 1.6% in 2008. Theoverall passenger load factor fell by 2.9 pp to72.6%, as falling passenger demand outpacedcapacity cuts.
Asia Pacific airlines were hit particularly hard, withAAPA members’ reporting a 12.6% decline ininternational passenger RPK, compared to an overallindustry decline of 7.6% in the first half of 2009.
PASSENGER TRAFFIC
Airline traffic trends were reversed after hitting a peakin the early months of 2008. The global financial crisistook its toll on trading activities, cross-countryinvestments and the tourism industry, contributing tothe almost flat 0.8% growth in the total number ofpassengers carried on scheduled services worldwidein 2008, compared to a 6% gain in 2007.
AAPA member airlines saw a 2.2% dip ininternational passenger numbers to 140.9 million.AAPA international passenger traffic in RPK termsdeclined by 1.4%. Capacity increased by 1.4% andthe average passenger load factor declined by 2.1pp to 75.0%.
AAPA’s international premium traffic numbers fell by4.1%, after a 7.2% increase in 2007. Premium trafficfell by 4.6% on intra-Asia Pacific routes, and by3.3% on long haul interregional routes.
For intra-Asia Pacific traffic, AAPA passenger numbersfell by 2.4% to 91.3 million. China traffic, a major partof AAPA members’ intra-Asia Pacific traffic, fell by11.9% following strong growth of 15.2% in 2007.
Growth of AAPA inter-regional passenger numberswas almost flat, at 0.2% to 34.3 million in 2008.Traffic growth for the Indian subcontinent, up 3.0%,and the Middle East/Africa, up 10.8%, were offsetby declines on long haul US and European routes,which slipped by 3.3% and 0.3% respectively.
Association of Asia Pacific Airlines8
During the first half of 2009, the number of passengerstravelling on AAPAmembers’ intra-Asia Pacific routesfell by 13.8%. Northeast Asia-Southeast Asia routesposted a decline of 17.0%. AAPA’s China traffic fell by18.4% during the first six months of 2009, comparedwith the 11.9% drop in 2008.
Similar trends were reported on AAPA inter-regionalfigures, with passenger numbers contracting by10.9% in January-June 2009 against a marginal0.2% growth for the year ended December 2008.
Premium travel fell at an even faster pace. For the firsthalf of 2009, AAPA members reported a shocking27.4% drop in premium passenger numbers, muchworse than the 4.1% decline seen in 2008.
CARGO TRAFFIC
The slowdown in international trade took its toll onglobal air cargo traffic, as reflected in the modest1.1% rise in cargo tonnage carried on systemwidescheduled services to 41.9 million tonnes in 2008,from a 3.6% gain in 2007, according to ICAOpreliminary estimates.
AAPA international cargo traffic underperformed theindustry average, with FTKs declining by 6.7% in2008. Cargo capacity was reduced by 5.4%,resulting in a moderate 1.0 pp fall in the averagecargo load factor to 65.5%.
Cargo carried on US and European routes recordeddeclines from as early as June 2008, culminating indouble-digit declines during the last few months ofthe year.
Japan - Korea
Hong Kong - Taiwan
Korea - China
Japan - United States
Australia - Singapore
Australia - New Zealand
Japan - Taiwan
Indonesia - Singapore
Japan - China
Korea - United States
Growth Rate %
1.7
-7.5
-10.0
-7.2
10.4
8.0
1.9
3.7
-13.6
0.3
AAPA Top Ten Passenger SectorsBetween Two Economies2008
20072008
0
Passenger numbers (million)
2 4 6 108
International Passenger Traffic Growth Rate Trends by RegionRPK % Change
IATA Asia Pacific Europe N. America M. East AAPA
-20
-15
-10
-5
0
5
10
15
20
25
Jan-
07
Feb-
07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
annual report 2009 9
AAPA intra-Asia Pacific cargo traffic dipped by 2.9%to 4.5 million tonnes in 2008. AAPA’s China cargotraffic fell by 1.1%, after a healthy 15.7% growth in2007.
Reflecting major inter-links between the NortheastAsian and US economies on international trade, theKorea-US sector topped the list as the largest tradelane with more than 460,000 tonnes carried.
During the first six months of 2009, globalinternational air cargo traffic deteriorated sharply,with FTKs falling by 20.6% compared to the moremodest 4.0% decline in 2008. Slower capacityreductions of 10.4% resulted in a 3.6 pp decline inglobal cargo load factor to just 45.3%.
AAPA international freight traffic registered a 22.6%decline in FTK terms, outpacing the 6.7% fall in2008. Capacity was reduced by 16.8% in theJanuary-June 2009 period, resulting in a 4.7 ppdecline in the average cargo load factor to 62.3%.
For the intra-Asia Pacific sector, AAPA cargotonnage fell by 18.6% in January-June 2009, from a2.9% decline in 2008, with most routes reportingsharp declines.
AAPA cargo tonnage on inter-regional routes fell by21.3% for the first half of 2009, compared to a 5.2%decline in 2008. Cargo volumes to/from the USmarkets experienced the largest fall (-25.6%)followed by the European markets (-22.8%).
Despite the overall decline for the six-month period,month-to-month statistics revealed a tentativelyimproving scenario, with AAPA members’ FTKdeclines moderating from -27.8% in January 2009to -17.2% in June 2009.
International Cargo Traffic Growth Rate Trends by RegionFTK % Change
Korea - United States
Korea - China
Japan - Korea
Taiwan - United States
Japan - United States
Hong Kong - Taiwan
HongKong -UnitedStates
Japan - China
Hong Kong - Japan
Hong Kong - Korea
Growth Rate %
-8.8
5.3
-7.6
-14.2
-11.3
-8.5
6.0
2.1
-2.4
2.3
AAPA Top Ten Cargo SectorsBetween Two Economies2008
0
Cargo Tonnage (000)
120 240 360 600480
IATA Asia Pacific Europe N. America M. East AAPA
-30
-25
-20
-15
-10
-5
0
5
10
15
20
Jan-
07
Feb-
07
Mar
-07
Apr
-07
May
-07
Jun-
07
Jul-0
7
Aug
-07
Sep
-07
Oct
-07
Nov
-07
Dec
-07
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
Jan-
09
Feb-
09
Mar
-09
Apr
-09
May
-09
Jun-
09
20072008
Association of Asia Pacific Airlines10
52nd assembly of presidents
EVA Air played host to the 52nd
Assembly of Presidents on 13-14
November 2008 in the city of
Taipei, with nearly 200 delegates
from various sectors of the
aviation industry present at the
event.
CEOs and senior executives
of the AAPA member airlines,
as well as aviation industry
partners including regulators,
manufacturers, suppliers, airports
cultural performances and were
appreciative of the warm and
generous hospitality of their Taipei
hosts.
The opening ceremony included
remarks by Mr. Oliver Fang-Lai Yu,
Administrative Deputy Minister of
the Ministry of Transportation and
Communications, emphasising
the positive role played by aviation
in economic and social
development.
year. Industry profitability was
under severe pressure, with Mr.
Herdman warning that, “We have
already seen a number of airline
failures. Some others won’t
survive the current crisis.”
Once again facing turbulent
times, Asia Pacific carriers were
responding appropriately, by
making careful adjustments to
both capacity and route
networks, as well as seeking
further operational cost savings.
and other service providers
thoroughly enjoyed the
opportunity to exchange views
and reinforce established industry
relationships. The mood of the
meeting was friendly and
constructive, in spite of the
difficult times confronting the
airline industry.
In addition to serious discussions
on industry matters, delegates
were treated to some spectacular
In his keynote address, Mr.
Andrew Herdman, Director
General of the Association of Asia
Pacific Airlines, noted that
following several years of steady
growth, the situation had abruptly
reversed. A slowing global
economy was proving extremely
challenging for airlines around the
world. The growth in passenger
numbers was just 2% in 2008,
while cargo volumes had fallen
below the levels of the previous
Mr Herdman emphasised AAPA’s
commitment to act as the trade
association for all Asia Pacific
based international airlines,
regardless of business model,
and said the Association was
always willing to welcome new
members. AAPA continued to
play an important and valuable
role in ensuring that the region’s
views are heard and given proper
weight in international debates on
key aviation policy issues.
annual report 2009 11
Mr Olivier Onidi, the European
Commission’s Head of Unit for
Internal Markets, Air Transport
Agreements and Multilateral
Relations delivered a wide
ranging and thought-provoking
presentation on various aviation
policy issues. Mr. Onidi also took
part in a lively and entertaining
CEO panel discussion moderated
by Tom Ballantyne of Orient
Aviation, together with Mr. Chew
Choon Seng (Singapore Airlines),
Mr. Idris Jala (Malaysia Airlines),
and Mr. Pandit Chanapai (Thai
Airways International).
AAPA ASSEMBLY OF PRESIDENTS
RESOLUTIONS
At the conclusion of the
Assembly, AAPA member airlines
strongly expressed their collective
views on major industry policy
topics, passing the following
resolutions:
Financial Strain on Industry
AAPA called on governments and
service providers to refrain from
putting further financial strain on
the aviation industry through
excessive taxes and charges. The
Association additionally called for
airports to adopt transparent, fair
and reasonable charges in
accordance with ICAO principles.
Air Traffic Management
Airspace congestion, delays and
environmental pressures remain a
major challenge for air carriers.
AAPA called upon governments
to collaborate and co-operate
with stakeholders on the
development of future ATM and
infrastructure improvements with
the objective of ensuring proper
harmonisation and technical
inter-operability.
Air Cargo Security
Noting that globally, airlines
transport goods representing
35% by value of international
trade, AAPA called on
governments to establish aviation
security measures in a manner
that strikes a balance between
the requirements of national
security and the need for efficient
cargo facilitation.
Passenger Facilitation
Recognising that the global airline
industry transports 2.2 billion
passengers every year, AAPA
called on governments to
embrace the use of new
technologies to streamline the
passenger travel experience and
at the same time enhance border
security.
Association of Asia Pacific Airlines12
AAPA fleet
The effects of the global economicdownturn, volatile fuel prices andfalling passenger and cargo yieldshas forced airlines to reducecapacity, delay new aircraftdeliveries, and retire or parkaircraft to remain competitive. Thecurrent AAPA fleet, includingregional and turboprop aircraft,totalled 1,782 aircraft. This is madeup of 937 wide-bodied aircraft,including Combis, 547 narrow-bodied, 158 turboprop aircraft and140 pure freighter aircraft. JapanAirlines tops the list with 292aircraft, followed by QantasAirways (233), All Nippon Airways(212), Cathay Pacific Airways(124), Korean Air (124), andSingapore Airlines (119).
The majority of AAPA memberairlines’ fleets only saw minorchanges in numbers in 2009.
Royal Brunei Airlines and EVA Airsaw their fleet remain unchanged,while four airlines: Dragonair,China Airlines, Asiana Airlines andKorean Air saw reductions due tothe retirement of older aircraft.All Nippon Airways and JapanAirlines, on the other hand, sawincreases in fleet size due to theconsolidation of smaller domesticoperations. Qantas Airways’ fleethas also increased due to thegrowth of its Jetstar and regionaloperations.
Boeing continues to dominateAAPA member airlines’ fleet typewith a 65% market share, whileAirbus currently accounts for26% of the overall fleet.Bombardier is the leadingsupplier of regional andcommuter aircraft for AAPAmembers.
Orders have been placed for over480 new aircraft, including theA330, A350, A380, B737 NG,B777 and B787, which arescheduled for delivery in phasesup to 2013.
The B747 (322 aircraft) and B777(298 aircraft) remain the mostpopular wide-bodied passengeraircraft among AAPA memberswith an additional 28 B777 and 10B747 to be delivered in thecoming five years. Firm orders forB737-NG (103) and A320 (64)aircraft to be delivered by 2013indicates further demand fornarrow-bodied aircraft typesamong AAPA members. In termsof newer aircraft types, AAPAcarriers have placed firm ordersfor the A380 (43 aircraft), the longawaited B787 (122 aircraft) andA350 (55 aircraft).
PASSENGERAIRBUS BOEING ATR
AIRLINE B717/ Q200/A300 A319 A320 A321 A330 A343 A345/6 A380 B737 B737NG B747 B744 B767 B777 DC9 MD90 ATR-72 Q100 300
AIR NEW ZEALAND 12 16 7 5 8 11 23ALL NIPPON AIRWAYS 29 20 24 15 55 43 5
ASIANA AIRLINES 11 14 8 5 2 7 10
CATHAY PACIFIC AIRWAYS 32 15 23 30
CHINA AIRLINES 17 6 10 13
DRAGONAIR 10 6 14
EVA AIRWAYS 11 3 14 3
GARUDA INDONESIA 10 35 20 3
JAPAN AIRLINES 22 23 25 6 37 46 46 14 16 4 1 1
KOREAN AIR 8 19 30 21 23
MALAYSIA AIRLINES 14 37 3 13 17
PHILIPPINE AIRLINES 4 18 8 4 5 3 5 4
QANTAS AIRWAYS 33 4 22 3 24 38 30 29 11 21
ROYAL BRUNEI AIRLINES 2 2 6 1
SINGAPORE AIRLINES 8 5 8 9 77
THAI AIRWAYS INTERNATIONAL 17 21 10 6 18 20 2
VIETNAM AIRLINES 10 15 4 10 11
TOTAL BY AIRCRAFT TYPE 47 6 125 39 188 25 15 11 166 150 6 199 148 298 14 30 24 4 53
AS OF NOVEMBER 2009
The average aircraft age of theAAPA fleet continues to berelatively low at 9.4 years, withSingapore Airlines having theyoungest fleet with an averageage of 5.9 years. The averagefleet age is expected to remainlow in the coming years due toAAPA member airlines’continuous investment in newtechnology aircraft to meetcustomer demand, enhance fuelefficiency and improveenvironmental performance.
COMBI FREIGHTERBOMBARDIER EMBRAER OTHERS BOEING AIRBUS BOEING Total by Airline
Airline CodeQ400 CRJ200 E170 B744 A300 B733 B747 B744 B767 MD11
18 100 NZ14 7 212 NH
3 7 1 68 OZ
24 124 CX
20 66 CI
1 31 KA
4 9 8 52 BR
68 GA
11 9 6 15 1 7 3 292 JL
1 22 124 KE
4 2 90 MH
5 47 PR
14 4 233 QF
10 BI
12 119 SQ
94 TG
2 52 VN
44 9 6 35 8 0 4 5 104 11 8 1782 TOTAL
Other AsiaPacific12%
AAPA 42%
America 9%
Global B747 Fleet By Operator Region
Europe 24%
Middle East 8%
Africa 5%
AAPA 30%
America 13%
Global A330 Fleet By Operator Region
Europe 27%Middle East 14%
Africa 2%
Other AsiaPacific7%
AAPA 38%
America 21%
Global B777 Fleet By Operator Region
Europe 16%
Middle East 16%
Africa 2%
Other AsiaPacific14%
annual report 2009 13
Association of Asia Pacific Airlines14
excessive regulation
chronically poor profitability of theairline industry. Looking to thefuture, it seems clear that furtherliberalisation is needed to addressthese fundamental challenges andpave the way for the successfulevolution of the industry.
In the past year, governmentsand regulatory agencies havecontinued to progress severalindustry regulatory initiatives,some unfortunately introducedwith little or no industryconsultation.
Flying is not only the safest formof travel, but also highly secure.However, governments havedeveloped a habit of imposinglayer upon layer of additionalsecurity requirements on aviation.Too often, such measures seemto be reactive in nature, based onfear rather than a balancedevaluation of threats and riskassessment. There is a reluctanceto subject proposed new securityinitiatives to an objectiveappraisal of the related costsweighed against the benefits tosociety.
The US Department of HomelandSecurity (DHS) in 2008 issued aNotice of Proposed Rulemaking(NPRM) proposing to make itmandatory for airlines to collectand submit biometric data ofdeparting foreigners at airportsand seaports. AAPA, working withother industry stakeholders,raised vigorous objections toairlines being made to undertakewhat was clearly a governmentresponsibility. After a coordinatedlobbying campaign, funding forthe programme was blocked, withCongress instructing DHS toconduct additional pilot studiesbefore final recommendations aremade. AAPA will continue tolobby on behalf of airlines againstthis ill-conceived initiative.
“ Airlines need greaterfreedom to operatejust like any otherindustry.”
The airline industry has alwaysbeen subject to close scrutinyand regulatory oversight, notleast because of the needto maintain the highestsafety standards. Unfortunately,regulation of the industry did notstop there, instead permeatingalmost every aspect of thebusiness. Such rules andregulations are promulgated bynational governments, as well asinternational bodies.
Airlines face a number offundamental restrictions on howthey do business, with limits onways in which they can accessand serve markets, governedby a historical aero-politicalregulatory framework ofbilateral air services agreements.
National ownership and controlrequirements prevent airlines fromfully accessing internationalcapital markets, resulting in ahighly fragmented industry.International mergers, commonlyseen in other sectors, simplycannot take place. Whilstprogressive liberalisation has atleast allowed the industry toexpand to meet growing demand,the shape of the industry reflectsthese distortions, and may alsoaccount for other structuralweaknesses which underlie the
annual report 2009 15
takes into account therepresentations and submissionsmade by various industry groupssince the NPRM was firstissued in 2005. A number ofother governments have alsointroduced additional reportingrequirements in response to theswine flu outbreak.
The fundamental problem withall these reporting requirementsis the lack of internationalharmonisation, leading toexcessive implementation costsand continuing confusionamongst passengers regardingthe proliferation of both paperforms and a multiplicity ofelectronic reporting requirements.AAPA will continue to press for
closer consultation and improvedinternational coordination todevelop common interfaces anddata standards.
Another area of concern is theproliferation of legislation underthe heading of consumerprotection. Some years ago,the EU introduced regulationson denied boarding andcompensation for cancellationsand long delays. Even today,there are continuing legalarguments regarding theinterpretation of those rules,including the definition of“extraordinary circumstances”and the relevant jurisdiction to beapplied to international journeys.Meanwhile, both the US
Airlines are already required tosubmit extensive informationabout passengers to governmentsaround the world in accordancewith various Advance PassengerInformation System (APIS)requirements, in some casesincluding more comprehensivedata on travel plans contained inairline passenger name record(PNR) data.
The US Government has recentlymade additional demands, withthe introduction of new andoften overlapping requirements,including the Electronic Systemfor Travel Authorization (ESTA), aform of e-visa for travellers fromcountries previously exemptedunder the US Visa WaiverProgram. The US Governmenthas also introduced its SecureFlight scheme, whereby allpassenger data has to besubmitted for pre-clearanceagainst US security watchlists.
With renewed attention beinggiven to health crisesand communicable diseasepandemics, the US Centers forDisease Control (CDC) is planningto mandate some form ofadditional advance passengerdata transmission by airlines. TheFinal Rule is imminent, and it ishoped that its implementation
Association of Asia Pacific Airlines16
Congress and the CanadianHouse of Commons areproposing to implement their ownversions of a Passenger Bill ofRights relating to long delays.Other consumer relatedlegislation covers the handling ofpassengers with disabilities orwith reduced mobility. Thechallenge, particularly forinternational airlines, is how tocomply with often inconsistentand contradictory requirements.
Despite the fact that airlines ingeneral struggle to earn positivereturns on invested capital, manygovernments continue to treatthe aviation industry as acash cow and convenientrevenue collection mechanism.Government taxes and chargesare estimated to account foraround 15% of the average ticketprice, even though the industryalready pays separately and in fullfor its own infrastructure,including airports and airnavigation services.
A number of governments haveannounced plans to introduceadditional taxes on travel under theguise of “green” initiatives, one ofthe most controversial being theUK Air Passenger Duty (APD),which will cost passengers US$4billion annually. This can only bedescribed as a blatant money-grab; none of the moneycollected is channeled towardsenvironmental initiatives. In anotherunwelcome development, theUS authorities have recentlyintroduced a US$10 charge onforeign visitors from visa waivercountries, supposedly to fundtourism promotion. Elsewhere inthe world, the Indian governmentimposed new fees withoutproper consultation with industry,whilst the Maldives governmentannounced that it intends tointroduce an “environmental tax”on tourists, even though tourism isone of the key contributors to thelocal economy.
More encouragingly, plans byseveral other governments to levydeparture taxes on air travellers
were withdrawn after it becameclear that the damage to thewider economy would far exceedthe revenues raised.
AAPAwill continue to lobby againstexcessive and unjustified taxesand charges, working closely withcolleagues in IATA and otherindustry stakeholder organisations.
Excessive regulations severelyconstrain the way in which airlinesoperate in what should be a moreopenly competitive marketplace.This limits consumer choice, atthe same time increasing overallcosts. Airlines need greaterfreedom to operate just like anyother industry, in a globallycompetitive sector. Governmentsneed to fundamentally re-thinkthe rationale for any newregulatory initiatives, and takecare to ensure that the intendedbenefits exceed the overall costsof implementation, taking intoaccount the wider social andeconomic benefits of meeting thegrowing demand for air travel.
“Governments need tofundamentally re-think therationale for newregulatory initiatives.”
annual report 2009 17
safety
The year 2009 opened with the
near disaster of US Airways flight
1549 with a water landing on the
Hudson River following a bird
strike after takeoff from New
York's LaGuardia airport. All
passengers onboard survived the
ditching, safely evacuated the
aircraft and were rescued by
passing ferries and local boats.
Although this was a highly
unusual incident, it clearly
demonstrated the value of an
experienced and professional
crew, good decision making,
good communications, and
situational awareness.
As of October 2009, there had
been 8 major accidents
worldwide this year involving
Western-built jet aircraft, which
had resulted in 410 passenger
fatalities. In addition, two
accidents involving Russian-built
aircraft (Tu154 and Il62) also led
to significant fatalities.
The accident rate in the first half
of the year was somewhat higher
than the established trend of
recent years, leading some to
question whether the industry’s
record of steady improvements in
safety performance was in danger
of being reversed. Pressure
mounted to review and potentially
overhaul core elements of the air
transport industry’s approach to
aviation safety management
developed over the past decade.
However, based on the latest
available data, the projected
results for the full year seem likely
to be in line with previous trends in
safety performance improvement.
Reviewing the industry’s safety
performance over recent years (see
figures 1 & 2), the average industry
major accident rate has improved
steadily, representing almost a
30% improvement since 2003. In
2008, the industry experienced an
accident rate of one accident for
every 1.6 million flights. This was a
slight deterioration compared to
the 2007 performance; however,
the total number of fatalities from
aviation accidents fell from 576 in
2007 to 396 in 2008.
Asia Pacific carriers’ safety
performance continues to
improve and is comparable to
industry standards. AAPA carriers
achieved the very highest
standards of safety in 2008, and
in 2009 continue to maintain the
level of vigilance needed to
ensure safety performance
remains comparable with major
airlines in the United States and
Europe.
“Flying is thesafest form oftravel, but thereis no room forcomplacency.Our target iszero accidentsand zerofatalities.”
Fig. 1
INDUSTRY SAFETY RECORD 2003-2009Western-Built Jet Aircraft
2003 2004 2005 2006 2007 2008 2009*
Major Accidents 18 18 18 15 14 17 8
Accident Rate^ 0.87 0.78 0.76 0.61 0.52 0.63
Fatal Accidents 7 5 8 8 7 10 7
Fatalities 484 235 757 549 576 396 410
^ per million sectors
* year to date 31 October 2009
Association of Asia Pacific Airlines18
The travelling public increasingly
recognises that flying is the safest
form of travel, but there is no room
for complacency. Our target is zero
accidents and zero fatalities. From
an industry standpoint, safety
remains the number one priority.
The industry’s excellent safety
record is the result of concerted
efforts by regulatory agencies,
the aviation industry and
other safety stakeholders to
continuously develop new
technology, operational standards,
staff training and the sharing of
best practices. Overall, whilst we
can learn a great deal from a
forensic analysis of accidents and
incidents, the major emphasis has
moved towards a prognostic
approach to safety management.
The aim is to evaluate risk factors,
and identify precursors to potential
accidents, so that appropriate
action can be taken, even before a
safety incident occurs.
Close collaboration across the
industry is a key feature in
working towards this shared
objective. Examples of such
programmes include the US
Commercial Aviation Safety Team
(CAST), European Commercial
Aviation Team (ECAST) and the
ICAO Cooperative Development
of Operational Safety
and Continuing Airworthiness
Programme (COSCAP).
Fig. 2
IMPROVING SAFETY PERFORMANCE TRENDS 2001-2009Major Accident Rates by Operator RegionWestern-Built Jet Aircraft
MajorAccidentRates(permillionsectors)
1.7 -1.6 -1.5 -1.4 -1.3 -1.2 -1.1 -1 -
0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 -0 -
World
2001 2002 2003 2004 2005 2006 2007 2008 2009
North America Europe Asia Pacific AAPA IATA
Dated: 3 years moving average
annual report 2009 19
These programmes have
developed safety enhancements,
intervention strategies and action
plans to eliminate possible
precursors and contributing
factors to potential events.
The global implementation of
Enhanced Ground Proximity
Warning Systems (EGPWS) has
all but eliminated accidents
characterised as Controlled Flight
Into Terrain (CFIT). Similarly, the
widespread deployment of Traffic
Collision Avoidance Systems
(TCAS) has radically reduced the
risk of mid-air collisions.
Other regulatory and industry
efforts to enhance safety are
ongoing and include Global
Aviation Safety Roadmap (GASR),
Safety Management Systems
(SMS) implementation, Flight
Operational Quality Assurance
(FOQA), Line Operations Safety
Audit (LOSA), Runway Safety
Initiative and Crew Resource
Management (CRM) training.
SMS is a systematic approach
to managing safety, including
the necessary organisational
structures, management
accountabilities, policies and
procedures. From 2009 onwards,
it is an ICAO requirement that all
agencies involved in aviation,
including airlines, airports, air
navigation service providers,
regulators, and maintenance
service providers must implement
SMS. A key aspect of managing
risk throughout the organisation is
to develop a strong safety culture
that encourages the reporting of
hazards, errors, incidents and
accidents without fear of punitive
action. SMS practices also need
to drive performance and
management decision making.
AAPA with its partners is
evaluating “leading edge” safety
performance metrics.
The Flight Safety Foundation
runway safety initiative, completed
in 2009, developed a toolkit and
countermeasures to reduce
incidents involving runway
excursions and overruns. The
AAPA was one of about 20
organisations from around the
world that provided their support to
this initiative. ICAO, FAA and EASA
are alsoworking on comprehensive
runway safety programmes.
Good safety data helps the
industry to identify emerging
safety issues and monitor safety
performance trends. To date,
much of the information has
been collected by different
organisations, including ICAO,
Association of Asia Pacific Airlines20
“AAPA carriers are committed to maintainingand further enhancing the aviation industry’senviable safety record.”
support efforts to strengthen
regulatory oversight across the
region, in full compliance with
international standards as laid
down by the International Civil
Aviation Organisation (ICAO),
working in conjunction with
national regulatory authorities and
other safety stakeholders. AAPA
carriers are committed to
maintaining and further
enhancing the aviation industry’s
enviable safety record, for the
benefit of the travelling public and
the continued successful
development of the industry.
territory, including regular ramp
inspections. Examples of such
programmes include the FAA
International Aviation Safety
Assessment program (IASA) and
the European Commission Safety
Assessment of Foreign Aircraft
programme (SAFA). Failure to be
in compliance with such
programmes could lead to
sanctions against individual air
carriers.
Given the projected growth in air
transport in the Asia Pacific
region, AAPA will continue to
IATA, FAA, EASA and other
national regulators. However,
efforts are underway to share and
eventually integrate access to
these separate databases
through the development of
shared portals and harmonised
data standards.
As already noted, the
enhancement of aviation safety is
a long term and continuously
evolving effort by all safety
stakeholders. The International
Civil Aviation Organisation (ICAO),
Federal Aviation Administration
(FAA), European Aviation Safety
Agency (EASA), Flight Safety
Foundation (FSF), and other
safety agencies and stakeholders
as noted have established
comprehensive safety programmes
and initiatives. Another key
component is effective safety
oversight including performance
audits.
Under the ICAO Universal Safety
Oversight Audit Programme
(USOAP), regular audits are
conducted of national safety
oversight systems, assessing their
level of compliance with ICAO
Standards and Recommended
Practices (SARPs).
The primary responsibility for
oversight of individual air carriers
lies with the State which issued
the Air Operator Certificate (AOC).
However, ICAO Annex 6 has
been amended to strengthen the
national oversight of all foreign air
carriers operating in their
“Environmental policies being shaped now bygovernments will have a major long term impacton the aviation industry as a growing, andcarbon-intensive sector. “
environment
A well developed air transport
system is an integral feature
underpinning the modern global
economy, providing safe, secure,
efficient and affordable access to
regional and global markets.
Travel and tourism are key
contributors to the successful
social and economic development
of both rich and poor nations.
The Asia Pacific region is home to
two-thirds of the world’s
population and includes diverse
economies representing both
developed and developing
countries. Within Asia Pacific, the
air transport sector supports
more than 3 million jobs and
contributes USD 170 billion to
GDP. Over the next two decades,
growth in the air transport and
tourism sectors are projected
to support almost 20 million
jobs, contributing more than USD
1 trillion to GDP.
Ensuring that such growth
is sustainable raises both
economic, as well as
environmental issues. Tackling
climate change features
prominently on the international
political agenda. Environmental
policies being shaped now by
governments will have a major
long term impact on the
aviation industry as a growing,
and carbon-intensive sector.
AAPA has been actively involved
in addressing this important
debate, engaging actively with
governments and other key
stakeholders.
Fueled by the growing demand
for aviation services, the industry
is a major target of environmental
groups, despite the fact that
the industry has a carbon
footprint representing 2% of
global CO2 emissions, supported
by a record of continuous
improvements in environmental
performance through investments
in quieter and cleaner technology.
However, the expected 5% p.a.
compound growth in demand for
air travel in the coming decades
will more than offset projected
efficiency gains, so absolute
emissions from aviation are
expected to double by 2030.
Inevitably, this brings the industry
into conflict with the overall goals
of significantly reducing total
greenhouse gas emissions.
Responding to this challenge, the
industry has established and
committed to targets to deliver
an ongoing 1.5% annual
improvement in CO2 emissions
efficiency each year to 2020;
carbon neutral growth from 2020;
and a halving of net emissions
by 2050 compared to 2005
levels. These are challenging
and ambitious targets, but
certainly achievable using the
industry’s established four
pillar strategy, combining
annual report 2009 21
technology, infrastructure,
operational improvements and
economic measures.
The major contributor towards
meeting the fuel efficiency goal
will be the continued investment
in fleet renewal, taking
advantage of new more fuel
efficient airframes and engine
technologies. AAPA members are
leading the way as launch
customers for new generation
aircraft that offer significant
improvements in environmental
performance, including the Airbus
A380, Boeing 787, and Airbus
A350.
Since fuel accounts for 30% of
total airline costs, airlines have
always been focused on striving
for operational efficiency gains to
minimise fuel usage.
The industry is also actively
exploring the potential use of
alternative fuels, including
sustainable biofuels. A number of
airlines, including Air New
Zealand and Japan Air Lines have
been involved in carrying out
initial flight trials to test the
feasibility of using such new fuels,
working with manufacturers
and innovative fuel suppliers.
These tests have successfully
demonstrated that the new fuels,
derived from a variety of biomass
feedstocks, and blended with
conventional jet fuel, can meet
the necessary operational and
performance standards. The
formal development of new fuel
specifications is underway, with
the aim of achieving the
necessary certification within the
next two years.
Biofuels offer the potential of a
60-80% reduction in life-cycle
CO2 emissions, as a result of the
CO2 absorbed during the
cultivation of the plant or
algae feedstocks. However, the
economics of biofuels are
complex, and there are a number
of challenges to be overcome
before biofuels can reach
commercial viability. Experience
with other green energy initiatives
points towards the need for
governments to support further
research and development, and
carefully consider the fiscal and
regulatory frameworks to
incentivise the adoption of low
carbon fuels.
In the United States, the Civil
Aviation Alternative Fuels Initiative
(CAAFI), a joint initiative that
brings together government,
industry and academic
stakeholders, has taken the lead
in this area. Elsewhere, the
Sustainable Aviation Fuel Users
Group (SAFUG) is working to
accelerate the development and
commercialisation of sustainable
aviation fuels. Asian carriers play
a leading role in this activity.
Another key area of opportunity
lies in improving the efficiency of
aviation infrastructure, notably Air
Traffic Management (ATM).
Representing the world’s air
navigation service providers,
CANSO has estimated that the
ATM system currently operates at
92% efficiency, with the prospect
of being able to achieve an
additional 4% improvement in fuel
and emissions efficiency through
the widespread adoption of the
latest generation of navigation
technologies and concerted action
to streamline the associated traffic
management processes. However,
they caution that this will require
very significant investments and
considerable effort over the
coming decades. They also note
that ATM has to operate within
constraints beyond its control,
including conflicts with military
controlled airspace, unpredictable
weather patterns, and over-riding
safety requirements.
The United States and Europe are
each developing their future air
traffic modernisation programmes
based on the Next Generation Air
Transportation System (NextGen)
and the Single European Sky ATM
Research (SESAR) respectively.
These are expected to provide
notable operational efficiencies,
cost savings and emissions
reductions. Efforts to harmonise
these programmes and ensure
global inter-operability are also
underway.
Association of Asia Pacific Airlines22
In the Asia Pacific region, a similar
coordinated effort is required in
order to more effectively respond
to future growth. One example of
effective regional collaboration
already taking place is the Asia
and South Pacific Initiative to
Reduce Emissions (ASPIRE).
Established jointly by air
navigation service providers from
the US, Australia, and New
Zealand, more recently joined by
Japan and Singapore, ASPIRE
has conducted demonstration
flights to showcase best
practices to maximise
operational efficiencies and
emission reductions within the
Pacific region.
The above measures will
contribute towards meeting
the industry’s commitment
of delivering continuous
improvements in fuel efficiency.
Achieving the industry’s goals of
carbon neutral growth from
2020, and a 50% reduction in
net emissions by 2050
compared to 2005 levels, will
require additional steps, most
importantly, the use of economic
measures in the form of carbon
taxes or emissions trading. The
aviation industry is willing to
make a fair contribution in
proportion to its global CO2
emissions towards climate
change mitigation and
adaptation. The benefits of
economic measures, ideally as
part of a global scheme, would
come from funds being
channelled to other sectors
where there are much greater
opportunities to cost effectively
improve energy efficiencies, and
realistic possibilities of switching
to less carbon intensive
technologies. In this way, the
benefits of allowing aviation to
grow would more than offset the
full cost of the environmental
impact, whilst contributing
significantly to the effort to
reduce overall global emissions.
The unwelcome alternative to
globally harmonised economic
measures is a patchwork of
uncoordinated schemes and
arbitrary levies targeting aviation
that would not achieve the desired
environmental objectives in a cost
effective manner. There are
already plans to introduce national
emissions trading schemes in the
EU, Australia, New Zealand, USA,
and Japan amongst others. The
problem with such national
initiatives is that they have
international consequences, with
the risk of overlapping and
excessive levels of charges. At the
same time, there is no assurance
that funds raised in this way, or
through arbitrary taxes such as
the UK Air Passenger Duty, will be
used to address genuine
environmental objectives. Airlines
are quite prepared for policies that
put a price on carbon, but only
ask that they receive proper
credit, are only charged once, and
at the same rate as other industry
sectors.
Meanwhile, the broader political
debate on climate change, being
conducted through the UNFCCC,
is currently deadlocked on
issues dividing developed and
developing countries. Hopefully,
these issues will soon be
resolved.
Despite the difficulties, the
aviation industry takes its
environmental responsibilities
seriously, and is committed to
working together with
governments, through ICAO,
to address these important
environmental challenges.
“The aviation industry takes its environmentalresponsibilities seriously, and is committed toworking together with governments, throughICAO, to address these important environmentalchallenges.”
annual report 2009 23
Association of Asia Pacific Airlines24
innovation
Air travel plays an important role
in our daily lives, bringing global
mobility, together with
reassuringly high levels of safety
and reliability. In an intensely
competitive marketplace, airlines
are constantly seeking ways to
provide even better service to
customers, through product
innovation and adapting quickly
to meet the changing demands of
travellers worldwide.
As Asian populations grow more
affluent and have a greater
propensity to travel, the overall
growth in the Asia Pacific market
has meant more commercial
opportunities for the airline
industry. The multiplicity of
business models and products
offered by carriers today is to be
welcomed, as this represents
more choices for consumers.
Particularly on longer routes,
passengers are willing to place
greater value on higher levels of
comfort, space and service.
Accordingly, leading airlines have
developed a variety of products,
ranging from extra legroom in
premium economy cabins, to flat
beds in business class, and even
more luxurious first class cabins.
Although the premium cabins are
mainly targeting business
travellers, a significant proportion
of those seats are used by leisure
travellers who similarly see the
value as justifying the extra cost.
Overall, in an international
context, customer demand and
competition has resulted in higher
standards of comfort and service.
However, the current economic
downturn has inevitably led to
weaker demand for business
travel, leading some to question
the validity of the full service
business model and premium
cabins in particular.
Similar concerns were expressed
during past recessions, but
invariably demand for premium
products recovered strongly once
economic conditions improved.
Whilst there may be a temporary
mismatch between the products
“The airline industry is characterised byintense competition, marked by productdifferentiation and service innovation, aswell as highly dynamic pricing strategies.”
annual report 2009 25
on offer and what the market
demands, cabin reconfigurations
are a time consuming and costly
exercise. Consequently, airlines
have had to respond to current
challenges by more aggressively
marketing their premium products
using a variety of pricing
initiatives and other promotional
campaigns to win back value-
conscious customers.
In short haul markets, customers
obviously place more emphasis
on schedule frequency, and
reliability, although there is still a
business market segment willing
to pay a modest premium for a
higher level of comfort and
service. Some new entrants have
even begun offering customer
loyalty programmes and lounge
access. On the other hand, some
full service carriers have begun
experimenting with so-called
menu pricing, offering customers
a choice of separately priced
service options, such as seat
selection, or for checking extra
bags. Unbundling services in
this way should lead to
closer matching of customer
needs, although the process can
be taken too far. Experience
from other industries reminds
us that a la carte pricing and
inclusive packages of services
can happily co-exist.
The successful entry of new
budget carriers to key markets
has stimulated further
competition, and now accounts
for about 14% of the total intra-
Asia Pacific market in seat
capacity terms. Established
carriers have responded by
streamlining their own products,
trimming costs, and competing
more aggressively in discounting
prices to attract discretionary
travellers.
A number of major carriers have
adopted multiple branding
strategies, and established stand-
alone low cost carrier operations
focused on key short haul leisure
markets. The most successful
example of this approach has
been Qantas and its very
successful development of
subsidiary Jetstar.
As further evidence of the
convergence of competing
business models, both Jetstar
and Air Asia X have recently
expanded their networks to
include a number of medium and
longhaul routes, served with
widebody aircraft. Whilst focusing
on leisure traffic, it is worth noting
that such services offer two
classes of seating, to appeal to
those customers willing to pay
extra for added comfort. The
front end premium or “economy
plus” fares bundle in inflight
entertainment offerings and more
elaborate meals, for which
passengers would have had to
pay an additional charge on their
single class, short haul flights.
Furthermore, the use of widebody
aircraft adds another dimension
to the business model, namely
the need to generate significant
additional revenues from the air
cargo business.
Inflight entertainment systems
have been another fertile area for
competitive product innovation.
Passengers are offered an
increasingly wide range of
movies, music, games and other
services, delivered through inseat
displays. Screen sizes have been
getting larger, and are now fully
integrated into the seat design.
Other features include inseat
power supply for passengers to
use laptops or other equipment.
The provision of USB sockets
also allows users to access their
own media content or personal
information. A number of
suppliers are also rolling out
inflight connectivity options,
allowing customers to make
phone calls, access emails or
even surf the net. Whilst these
technologies are now entering
service, the variety of proprietary
standards being used may hold
back widespread adoption. In
addition, there are still differing
views on how such services
should be paid for, with airlines
trying out a variety of charging
schemes.
Other areas where digital
connectivity solutions are having
an increasing impact is in
streamlining passenger processes.
Association of Asia Pacific Airlines26
The use of self-service kiosks at
airports is spreading rapidly to
international travel, having initially
been deployed in major domestic
markets. The opportunity to make
changes to reservations, and
check-in online, from home or
office, are other new features
which have been enthusiastically
adopted by regular travellers.
Similarly, the use of mobile phone
messaging to confirm flight
information and provide timely
updates on gate changes,
weather conditions or other flight
disruptions helps keep customers
fully informed.
Even governments are finally
embracing the use of new
technologies, including biometric
recognition such as fingerprint
reading or iris scanning, in order
to simplify and streamline the
process of conducting necessary
border and security checks.
Passengers look forward to the
day when some of the many
government forms which
currently have to be completed
can eventually be eliminated. The
airline industry has already set a
good example with the
successful implementation of
electronic ticketing worldwide
and the effective elimination of
paper tickets.
The airline industry is
characterised by intense
competition, marked by product
differentiation and service
innovation, as well as highly
dynamic pricing strategies. In
order to retain customers and to
attract new passengers, airlines
will continue to invest in
innovative products to enhance a
passenger’s flying experience.
With the Asia Pacific region
poised to lead in terms of traffic
growth in the coming decades,
the region’s carriers are expected
to maintain their lead in
delivering both customer service
excellence, and value for money,
through a process of continuous
innovation.
“The region’s carriers are expected tomaintain their lead in delivering both
customer service excellence, and valuefor money, through a process of
continuous innovation.”
annual report 2009 27
Association of Asia Pacific Airlines28
outlook 2010
Thankfully, we seem to haveweathered the worst of the storm;the global economy is beginningto show some signs of recoveryfollowing widespread declines inoutput of both goods andservices. The rebound hasbeen led by the Asia Pacificregion, where both individualsand governments are lessencumbered by the excessivelevels of debt which continue toweigh heavily on both businessand consumer sentiment in NorthAmerica and Europe.
The IMF anticipates global GDPgrowing by 3% in 2010. This figurereflects expectations of a modestrecovery in the major developedmarkets, but strong growth inChina and India could see theAsian region achieving 7% growthin the coming year. Whilst positive,there is still the question of whetherthis resurgence will be self-sustaining. Western consumers,facing still rising unemployment,are cutting back and taking stepsto reduce debts, whereas indeveloping and emergingeconomies, the challenge is how todiversify beyond over-reliance onexports to a more balancedscenario including faster growth indomestic consumption.
In recent months, airlines haveseen load factors recover, but lowyields mean continuing losses forthe industry. Rising oil prices arecertainly not helping. Even whenwe do see a further pickup indemand, it will require carefulmanagement of capacity, costsand pricing to nurse batteredbalance sheets back to full health.We must also never lose sight ofthe need to drive furtherimprovements in efficiency andcost-effectiveness throughout thevalue chain.
If there is a part of the industrythat appears to have beenunaffected by the recession, it isthe fact that the regulatoryagenda has remained as busy asever. Fresh challenges includeonerous security procedures forboth passengers and cargo thatoften seem to be driven moreby fear than cold reason;inconsistencies in the multipleways in which passengerinformation has to be provided togovernment authorities; and theimposition of further layers ofgovernment fees, taxes andcharges.
Even more fundamental, is theneed for further structural reform,including a fresh look atrestrictions on national ownershipand control which hold backconsolidation and hinder accessto international capital markets.
With the expected resumption ofgrowth, environmental challengesremain high on the politicalagenda. The aviation industry isunited in its commitment toambitious environmental targets,but is being held back by thefailure of governments to resolvemajor differences between theviews of developed anddeveloping states. AAPA willcontinue to press for a globalsectoral approach to aviationemissions, working through ICAO.
To end on a distinctly positivenote, global air travel demand isexpected to double over the nextfifteen years, led by faster growthin the Asia Pacific region, which isset to become the world’s largestaviation market. AAPA and itsmember airlines will be at theforefront of these developments,playing an important role inshaping the future of the industrywhilst serving the widercommunity.
“ Global air travel demand is expected to doubleover the next fifteen years, led by faster growthin the Asia Pacific region.”
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