Asian airlines fighting to survive

Asian airlines fighting to survive

SINGAPORE (Reuters): Airlines across Asia are struggling to
adapt to an unprecedented crisis which they can do little about,
and some are fighting to survive.

After a year-long slump in the Asian travel market, the only
option for many carriers is to slash costs by selling planes,
sacking staff and cutting routes.

Some airlines have seen passenger load factors shrink by 10
percent in an industry where 1 percent can be the difference
between profit and loss, according to the Sydney-based Center for
Asia-Pacific Aviation.

Load factors for some airlines in countries which have
suffered the worst economic and political turmoil may have taken
an even bigger hit, other analysts said.

"There are simply too many airlines for the existing
competitive regime," the center said in a report.

Managing director Peter Harbison said the end result will be a
leaner Asian aviation industry, instead of the boom the industry
was gearing up for, although he anticipates intervention by some
governments to help ailing national carriers.

Airline managers have been slow to realize the severity of the
crisis, Harbison said.

"Many in airline management were not able to accept that
things were like this," he said. "There is no precedent and in
that case it is difficult to factor in this kind of judgment,
which seems to go against your previous experience."

Falls in Asian currencies have had a major impact on airlines
-- typically 80 percent of carriers' costs are denominated in
dollars.

Some carriers have tried shifting planes to routes which
generate income in dollars, but that does not necessarily mean
there is traffic. Fare-cutting equally cuts into airlines' profit
margins.

Earlier this month the crisis in Asia's skies claimed its
first victim, Indonesian domestic airline Sempati. The Indonesian
rupiah, the currency most badly hit by the Asian crisis, has
depreciated more than 80 percent against the dollar over the past
year.

The Indonesian National Air Carriers Association has issued
dire warnings that further collapses could follow.

Flag carrier Garuda Indonesia has announced plans to return
all its leased aircraft. The airline has foreign debt of around
US$200 million, of which half is already due.

There have been calls for Indonesian airlines to pool their
resources and combine domestic routes and newspaper reports
suggest they are seriously considering it.

"Outside of Bali, I am not sure that Indonesia is really a big
market right now," said Peter Negline, regional airline analyst
at Salomon Smith Barney in Hong Kong.

Jose Antonio Garcia, president of Philippine Airlines Inc.,
warned closing down was an option for PAL as the airline sacked
striking pilots and abandoned most of its international routes
earlier this month.

Even the region's most profitable airline, Singapore Airlines
Ltd., has said it anticipates a difficult business environment in
the immediate future.

Negline said most Asian airlines are trying to control costs
because they cannot control revenues.

"For most of them the pain is starting to get a bit intense."

Stronger regional carriers like Singapore Airlines may
eventually benefit from their rivals' cutbacks, he said. Open
skies policies adopted by many Asian countries make this easier.
But this is a long way off.

Cargo volumes have also dropped, although not as severely as
passenger traffic. Asian exports of high value-added goods, a
mainstay of air cargo, have remained strong.

The only truly bright spot for airlines has been low oil
prices, which have reduced the cost of aviation fuel, one major
dollar-denominated cost.

Jet kerosene is now hovering around $13.70 a barrel, compared
with $23.45 a barrel a year ago, and recently hit its lowest
level in more than a decade.

Without this the outlook for Asian carriers would be even
grimmer, said James Ong, spokesman for the Manila-based
Association of Asia-Pacific Airlines.

"For the carriers that are hardest hit I can't say with any
degree of confidence what they will do," said Ong.

Philippine Airlines and Korean Air are both selling planes.
Any aircraft not flying is a liability, bringing in no revenues
but costing airlines parking fees and maintenance.

But there is a danger of Asian airlines flooding the used
aircraft market and depressing prices, said Keith Nam, analyst
for ABN-AMRO in Seoul.

Korean Air's entire fleet should be worth about $4.44 billion
going by recent prices, while its debts are $5.5 billion, Nam
said.

KAL reported a net loss of 397.48 billion won for 1997, nearly
twice that of the previous year. Some $619 million was attributed
to foreign exchange losses.

While selling older aircraft will ease the financial strain,
KAL is also facing major costs in the next few years to replace a
large part of its aging fleet.

But Nam anticipates KAL will survive, with government help if
need be.

"It has just got to restructure like the rest of corporate
Korea and it might take a while," he said.