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.