Asian airlines expect rebound this year

Asian airlines expect rebound this year

Jason Szep, Reuters, Tokyo

Flying to Bali from Tokyo on New Year's Eve cost at least
US$1,290. That's for an economy seat in one of Asia's cheapest
airlines, Garuda Indonesia.

Wait another week, and the price tumbles to $375.

The peak holiday season gave airlines a chance to claw back
some losses after Sept. 11 turned a bad year into a horrific one.
But most major Asian carriers will face a grisly first quarter
with many logging losses.

After that, however, the ride gets a little smoother.

Travel within Asia is not as bad as in Europe and the United
States, and by summer the bigger carriers such as Singapore
Airlines, Cathay Pacific and Qantas could feel some improvement
as steep capacity cuts and low fuel costs begin to pay off.

"The decline relative to their overall network hasn't been as
severe as for the other regions," said Philip Wickham, analyst at
ING Barings in Hong Kong.

But 2001 has been a nightmare of a year, with typically
lucrative first and business class cabins hollowed out, passenger
and cargo volumes dwindling each month and long-haul routes to
the United States and Europe hemorrhaging severe losses.

The $375 fare on Garuda from Tokyo to Bali in early January
would barely be enough for Indonesia's flag carrier to pay its
fuel costs. "They are simply keeping the route alive," said John
Koldowksi, an official at the Pacific Asia Travel Association.

Making matters worse, the fear of flying and global economic
chill that followed the attacks on Washington and New York in
September came in a year that was already seeing cargo traffic
slipping across Asia.

For most airlines, it's not as bad as Asia's 1997-98 financial
crisis that sent some to the brink of bankruptcy, and analysts
say the long-term outlook in the Asian aviation market, the
world's fastest growing, helps dispel some of the gloom.

In China, airlines are adding capacity in a booming domestic
market.

In Southeast Asia, Thai Airlines and Malaysian Air are heavily
focused on intra-Asia routes, with less exposure to the money-
losing U.S. and European routes.

Singapore Airlines (SIA), Cathay Pacific Airways Ltd., Qantas
Airways Ltd. and Korean Air Lines Co Ltd. all posted sturdy gains
in October and November, last year, linked also to low fuel
prices and hopes for a turnaround.

But analysts say the pace of any recovery still depends on the
speed of an economic turnaround in the United States, and how
fast this trickles into the Asian economies.

"It doesn't really matter which of those three airlines you
look at," said Kevin O'Connor, analyst at Deutsche Bank,
referring to SIA, Cathay or Qantas. "Making money in the March
quarter of this year is going to be pretty much impossible."

Chinese airlines have low international exposure compared with
other Asian carriers as they are focused on the growing domestic
market, where still-strong economic growth and WTO membership are
expected to fuel traffic demand.

Analysts expect domestic traffic volume to grow about 10
percent this year, helped by increased trade during China's first
year in the World Trade Organization, making China one of the
fastest-growing aviation markets in the world.

The three biggest players, flag carrier Air China, China
Southern, the country's largest airline, and China Eastern
operate most of the country's international flights.

This year, the big three carriers will also be focusing on
carrying out a government-directed merger with smaller Chinese
airlines -- taking over their fleets and consolidating routes
while restructuring their debts.

Australia's Qantas, which recently ordered 15 new Boeing
planes in a A$1.5 billion ($757.6 million) upgrade, looks set to
remain one of the strongest in the region, dominating around 85
percent of Australia's A$10 billion domestic market following the
demise of second-ranked Ansett Australia.

But a sharp drop in international traffic, which has forced
Qantas to cut routes and redirect planes to busier domestic
routes, is likely to remain a drag on its performance this year.

Singapore Airlines Ltd., among the world's most capitalized
airlines and renowned for its modern fleet, high level of service
and penchant for expansion, suffered its biggest drop in
passenger loads in October, last year since January 1996.

Passenger numbers in the month dwindled 14.6 percent from a
year earlier, while freight slipped 7.8 percent.

Taiwan has big exposure to the U.S. market, and this means
deep slides in passenger traffic on its key trans-Pacific routes
to the United States, leading to cuts in capacity. Yields,
however, have held up well thanks mostly to a weak Taiwan dollar.

Hong Kong's Cathay Pacific Airways, Asia's fourth-largest
airline by capacity, has said its 2001 financial year was shaping
up worse than 1998, when a regional financial crisis sunk it into
its first-ever loss.

It is reported to have told analysts to expect a second-half
loss but a full-year profit. Many analysts, however, expect
Cathay to suffer a full-year loss in 2001.

In north Asia, Japan's airlines are forecasting heavy losses
for the current business year to March, with the nation's largest
carrier, Japan Airlines Co Ltd., forecasting a 40 billion yen
($311 million) plunge into the red, which would be its worst
full-year net result since 1996/97.

Number-two All Nippon Airways Co Ltd. has forecast a net loss
of 11 billion yen and third-ranked Japan Air System Co Ltd. has
cut its full-year net profit forecast by 77 percent to 700
million yen from three billion yen.

Korean Air, also hit by big exposure to the trans-Pacific, is
pinning its hopes on the 2002 World Cup to be co-hosted by Japan
next year and expects the event to help swell revenue by 100
billion won ($77.91 million) next year.

South Asian airlines, such as Indian Airlines, generally have
more exposure to the European market, with about 40 percent of
arrivals in 2000 coming from Europe, according to the Pacific
Asia Travel Association.

As such, all three major Indian airlines are expecting losses
for the year to March.