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Soft trading conditions dampen demand for Asia-made goods

By Staff Reports on May 8, 2014

Asia Pacific airlines recorded 55 percent less combined net earnings in 2013 year over year.

The airlines made US$2.5 billion (1.7 million euros) in 2013 and US$5.6 billion (4 million euros) in 2012, according to preliminary figures from the Association of Asia Pacific Airlines (AAPA). Profitability succumbed to widespread yield pressures arising from stiff market competition and lackluster air cargo demand.

Operating revenue for the region's carriers totaled US$171.2 billion (123 billion euros), 2.1 percent less than in 2012. Cargo revenue declined by 4.6 percent to US$20.2 billion (14.5 billion euros), caused by persistently soft global trading conditions that in turn affected demand for airfreighted goods manufactured in Asia.

During 2013, international air cargo traffic, measured in freight tonne kilometers, saw a 1.2 percent decline.

“Overall, Asia Pacific airlines faced challenging conditions in 2013, and registered a net profit margin of just 1.5 percent, compared with the 3.2 percent margin achieved in 2012,” Andrew Herdman, AAPA director general, said. “Intense competition in both the passenger and air cargo business segments led to pressure on fares, and weaker Asian currencies adversely affected costs, even more so for airlines with significant exposure to foreign denominated debt.”

Combined operating expenses edged 0.4 percent higher, with lower fuel expenditure partially mitigating the effects of higher non-fuel costs. The region's fuel bill came to US$59.9 billion (43 billion euros), 3.2 percent lower than in 2012, with a corresponding decline in average jet fuel prices to US$123 (88.43 euros) per barrel for the year.

Consequently, the share of fuel expenditure as a percentage of total costs declined by 1.3 percentage points to 35.8 percent in 2013. Non-fuel expenditure increased by 2.5 percent, due to higher depreciation and staff costs.

“Asian carriers are still facing a difficult operating environment marked by continued market competition and volatile currency markets,” Herdman said. “The focus for airlines remains firmly on strict cost controls and further productivity improvements. Overall, however, prospects for a further pick-up in the global economy and expectations of a cyclical upswing in international trade should give some grounds for optimism.”