Asia Pacific airlines profitability fell in 2018

posted on 16th May 2019 by Justin Burns

Preliminary financial performance figures released today by the Association of Asia Pacific Airlines (AAPA) revealed the aggregated net earnings of Asia Pacific airlines halved in 2018 to a combined US$4.7 billion, from the $9.6 billion recorded in the previous year.

AAPA said continued expansion in the global economy underpinned further growth in air passenger and air cargo markets, but airlines faced an increasingly challenging operating environment marked by significantly higher jet fuel prices, adverse currency movements and rising pressures on non-fuel cost items.

Overall, international passenger traffic, in revenue passenger kilometer terms (RPK), grew by a robust 6.9 per cent in 2018, stimulated by rising incomes, further expansion of airline networks and widespread availability of competitive airfares.

International air cargo traffic as measured in freight tonne kilometres (FTK) slowed to a 2.2 per cent increase for the year, as uncertainties stemming from unresolved international trade disputes adversely affected business confidence and levels of export activity.

Collectively, the region’s carriers achieved operating revenues totaling $204.7 billion in 2018, a 10.4 per cent increase compared to the $185.4 billion registered in the previous year.

Passenger revenue rose by 10.4 per cent to $159 billion, driven by the solid growth in passenger demand and slightly higher average air fares. Passenger yields recorded a 3.1 per cent rise to 8.1 cents per RPK after several years of decline.

Despite slower growth in air cargo demand, cargo revenue increased significantly, by 11.5 per cent to $21.2 billion, with an 8.9 per cent increase in cargo yields to 27.1 US cents per FTK.

Meanwhile, operating expenses grew by 12.5 per cent to an aggregate total of $194.6 billion in 2018. This was driven by a significant 27.5 per cent rise in fuel costs to $54.5 billion, in tandem with the 29.8 per cent jump in global jet fuel prices to an average $85 per barrel.

Consequently, the share of fuel expenditure as a percentage of total operating expenses rose by 3.3 percentage points to 28 per cent. Non-fuel expenditure increased by 7.6 per cent to $140.1 billion, driven by higher staff costs as well as landing fees and en-route charges.

AAPA director general, Andrew Herdman said, “Asian airlines are operating in highly competitive markets, and were not able to pass on the full cost impact of significantly higher fuel prices we saw in 2018.

“Consequently, overall operating margins narrowed to 4.9% for the year, from 6.7% in 2017. After extraordinary items, which included foreign exchange losses for a number of carriers, aggregate net earnings fell to US$4.7 billion in 2018. As an indication of the highly competitive nature of the airline business, this represents an average profit level of just under US$5 per passenger flown.”

Looking ahead, Herdman said, “Asia Pacific airlines continue to face significant headwinds in the form of persistent cost pressures, stiff competition as well as further volatility in oil and currency markets. Whilst air passenger markets remain relatively resilient, the weak sentiment surrounding air cargo markets is a warning signal that trade disputes are doing real damage to the economy and could further undermine global growth prospects going forward.”

“Undaunted, Asia Pacific carriers continue to evolve, adapting to a dynamic market place. Airlines are continuously reviewing their business plans, implementing measures to improve efficiency and carefully managing costs whilst seeking opportunities to maximise revenue.

“In addition, the region’s airlines remain at the forefront of industry developments, launching new services and investing continuously in new technologies with the aim of providing passengers with high levels of customer service and a seamless travel experience.”