Asian crisis will force aviation mergers

Asian crisis will force aviation mergers

SHANGHAI (AFP): The Asian economic crisis will depress
regional aviation markets for a least two years and force most
local companies into strategic alliances, Air France's regional
director warned Monday.

Inter-regional traffic will be the hardest hit in 1998 and
1999 falling six to eight percent this year compared with 1997,
said Marie-Joseph Male.

And there will be huge disparities between the growing Chinese
market, a slight cutback in Japan by three to four percent and a
massive drop of 30 percent on the South Korean market or some 40
percent in Indonesia, he told AFP.

Long-haul flights will be less affected dwindling by only
three to four percent due to the good connections for Europe and
the United States.

Quoting a study published by the Centre for Asia Pacific
Aviation, Male said global air traffic to the region was in
decline having fallen nine percent in March 1998 compared with
the same period last year, while average occupancy rates were
down 6.2 percent.

Amid the cocktail of recession, unemployment and inflation
which has hit the region there is no hope of a swift recovery of
inter-regional traffic. And the situation could last two to three
years, meaning it will take four years for the aviation market to
claw back to its 1997 levels, Male said, quoting the study.

The consequences are dramatic for many companies who had
predicted booming double-digit growth rates and put in huge
orders for large passenger planes.

Over-capacity, a price war and a sharp fall in profits have
hit many regional companies hard such as Philippine Airlines,
Indonesia's national carrier Garuda, or Korean Air.

They have been forced to drastically scale back flights to
Europe, some even stopping flights to Paris, and are hastily
trying to cancel or postpone orders.

Airlines less affected have redeployed their planes for routes
with the greatest potential such as Europe and the United States,
which is eating into the prices and profits of western companies.

The International Air Transport Association (IATA) in June
revealed that there had already been a slight impact on aircraft
orders. Its managing director Pierre Jeanniot said that 60 to 70
orders for new planes had been canceled or put off for the long-
term by Asian companies.

The figure represented almost "10 percent of the total last
year."

"The extent of the impact will rapidly affect international
air services worldwide, with negatives for yields and aircraft
orders. The global impact will become evident after the northern
summer peak season ends," analysts quoted by Male have said.

Air France believes it is well-placed to benefit from the
situation, and its head of China services, Daniel Mayran, pointed
to a 32-percent increase in business in the first five months of
this year compared with the same period of 1997 -- a figure which
includes new routes.

Company president Jean-Cyril Spinetta, who Sunday inaugurated
a third weekly Paris-Shanghai flight, said business was set for a
double-digit growth in Asia this year.

"If things are going bad in Korea, India remains good. Japan
which represents 60 percent of the regional traffic is holding up
well and we are the first Europeans with a strong image and in
China we are aiming for this place as 2000 dawns thanks to an
alliance with China Eastern," he said.

Alliances which Asian companies shied away from when demand
was high will become unavoidable during a time of rationalization
and cost-cutting, Male added.

The need to use smaller planes will also make them look for
the best possible connections and join forces with major
international carriers around several main hubs, such as Narita,
Japan, Hong Kong and Singapore.