Asian national airlines set for boom and bust

Updated July 21, 2010 12:42:44

Asia has weathered the global financial crisis better than many other regions and many sectors are looking to local trade to make up for lost markets elsewhere.

One industry set for a a major restructure is the airline sector, according to the Centre for Asia Pacific Aviation. The Centre is predicting a rapid increase in air freight business as countries refocus export expectations within the neighbourhood. But the forecast growth in business may not be enough to prop up some of the region's already-struggling national airlines.

Presenter: Claudette Werden
Speakers: Peter Harbison ,Centre for Asia Pacific Aviation

HARBISON: There are a lot theories on that, one of them is that when people smell aviation fuel they go a little bit silly, and I think it is a glamour business, it's the sort of business that really is there because it supports a lot of peripheral industries. It supports the airport industry, it supports the tourism industry, it supports all the suppliers to the airlines, the thing it doesn't support is the airlines themselves generally. So in those circumstances yeah, it really is a very good question, why on earth do people bother? And the answer I guess if you go back is that most people bothered originally because they were government-owned, because they were instruments of the flag, hence they're called flag carriers, every government needed one or felt it needed one as a sort of public service to ensure that it had international commercial and domestic commercial links, that it fed the tourism industry. And as a consequence of that, you had an internationally, heavily regulated structure where pricing was controlled, where actually market access was controlled, and on the back of that fairly non-commercial framework you developed a lot of airlines that really weren't commercially viable. And that's as we move into liberalisation and deregulation over the last ten years or so, that has exposed a lot of airlines as just not being viable operations. When the tide goes out you see a lot of people swimming without anything on.

WERDEN: So the next question then are we going to see the demise of national carriers?

HARBISON: I mean this sounds an awful thing to say but I really hope so because it would be very, very good for everybody concerned. As I say it does sound an awful thing to say because that involves a fair amount of pain, particularly for employees of the airlines involved and for a few others involved. I think perhaps the best example of where that pain in the long run was really worth it, and again this is a controversial thing to say, was in Australia where Ansett collapsed. And Ansett when we look back and we analyse it as an efficient airline was probably ranked about 299 out of 300 in terms of being efficient, practical, commercial, and as long as it was in the market we had this duopoly with Qantas domestically, you had high fares, you had very low growth in the market, well below GDP growth, which is a good indicator of usually how fast an aviation market grows, and as soon as it went out of the market, it was driven out by low-cost more efficient carriers, you see where airfares have gone ever since then, just down and down and down. And it's meant that so many more Australians have travelled and foreigners have travelled in Australia, it's been so good for the tourism industry, it's been so good for business.

WERDEN: And now that the Asia Pacific is more popular than the North American route, what do we see say for this region over the next five years?

HARBISON: Well the first and very important thing and I think a lot of the rest of the world hasn't realised it in practical terms yet, is that this region, that is the Asia Pacific right through to India and the Gulf, is where all the growth is going to be in the future. And as a result of that what happens in this marketplace is going to determine what happens in the rest of the world.

WERDEN: When you say determine the future of how it works, how differently will it work than other than being a more popular hub?

HARBISON: Well I think they'll be a lot more, this is a region in a lot of ways which has not from the trade point of view, has not justified its potential in any way. Most of the trade involving countries in this region, and I think particularly Japan and China but also Vietnam and Malaysia, have generally relied on trade with other parts of the world, the United States and Europe, and the internal trade within Asia is really grossly underdone. And that's been reflected very much too in the aviation sector, watching it I see a tremendous amount of new short-haul growth largely on low-cost airlines within Asia. And as these countries within Asia develop, become less restricted in their trade, more free trade arrangements and so forth, then trade is going to boom within Asia itself. And that is both led by and fed by the airline business because obviously the ability to be transported around the region is a very key part of that whole process of conducting trade, including tourism.

WERDEN: Right so you're saying that I should be buying shares in air cargo carriers yeah?

HARBISON: I wouldn't suggest anybody bought shares in any airline whatever.

WERDEN: Really?

HARBISON: They're terrible, I mean as an investment I wouldn't dream of it. They're good shares to trade because they go up and down, but do they return? No, forget it, keep away from them.