Figures released today by the Association of Asia Pacific Airlines (AAPA) revealed that the aggregated net earnings of Asia Pacific airlines halved in 2018 to a combined US$4.7 billion, compared with a year earlier.
Continued expansion in the global economy underpinned further growth in air cargo and passenger markets in 2018, but Asia Pacific airlines faced an increasingly challenging operating environment in a year marked by significantly higher jet fuel prices, adverse currency movements and rising pressures on non-fuel cost items.
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.
Overall, international passenger traffic, in revenue passenger kilometre 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.
Collectively, the region’s carriers achieved operating revenues totalling USD204.7 billion in 2018, a 10.4 per cent increase compared to the USD185.4 billion registered in the previous year.
Despite slower growth in air cargo demand, cargo revenue increased significantly, by 11.5 per cent to USD21.2 billion, with an 8.9 per cent increase in cargo yields to 27.1 US cents per FTK.
Passenger revenue rose by 10.4 per cent to USD159.0 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.
Meanwhile, operating expenses grew by 12.5 per cent to an aggregate total of USD194.6 billion in 2018. This was driven by a significant 27.5 per cent rise in fuel costs to USD54.5 billion, in tandem with the 29.8 per cent jump in global jet fuel prices to an average USD85 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 USD140.1 billion, driven by higher staff costs as well as landing fees and en-route charges.
Commenting on the 2018 financial results, Andrew Herdman, AAPA director general says: “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, he says, overall operating margins narrowed to 4.9 per cent for the year, from 6.7 per cent in 2017. After extraordinary items, which included foreign exchange losses for a number of carriers, aggregate net earnings fell to USD4.7 billion in 2018.
“As an indication of the highly competitive nature of the airline business, this represents an average profit level of just under USD 5.0 per passenger flown,” Herdman adds.
Looking ahead, Herdman says: “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,” he adds.