Dark years ahead, warns CAPA's Peter Harbison
31 Oct 2008
Singapore: An aviation industry conference has warned airlines that they would need to brace for bleak business over the coming two years amid a global recession. It also warned that they would need to deal with the challenges, or face the risk of extinction.
Speakers at the conference also said that carriers from Asia and the Middle East, which thus far have been seen with healthier balance sheets, will also not be able to escape the financial turmoil. They said that the financial turmoil would spill over and in turn impact the global economy.
Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation said that he foresees a ''couple of dark years for the aviation business.''
He told the Aviation Outlook Asia conference that this was not just another downturn, and warned airlines against complacency. He said any carrier that did not face up to the challenges would risk annihilation, saying that there is ''no airline in this region'' and ''probably for most of the world too'' that can be confident of ''being here this time next year''.
He said that apart from coping with slowing demand, particularly from the lucrative corporate travel segment, airlines will also need to deal with volatilities in foreign currencies that will directly impact their hedging strategies. He said that currency instability "has created massive problems for airlines in terms of their risk management, in terms of their hedging."
Andrew Herdman, director general of the Association of Asia Pacific Airlines, while addressing attendees at the conference said that the mood in the industry had altered dramatically over the last few months, by the way in which ''everything has fallen off the cliff''. He said surging oil prices that set a new record above $147 in July was "killing airlines' profitability", and said even though prices have halved to around $70 dollars a barrel since then, revenue outlooks for carriers remains ''extremely gloomy''.
Damien Horth, who heads transport research at banking firm UBS, shone a ray of light between the gloom, foreseeing instead a window of opportunity for airlines to undertake changes that will result in a stronger industry.
He said that not much of the industry could change during boom times, and that this was a ''big opportunity for change'' in the aviation industry. He felt that too many subsidies were being given out within the sector, and therefore felt that things would need to change more through the current downturn. He said the balance sheets of the region's airlines "are actually quite weak", except for Singapore Airlines and Hong Kong's Cathay Pacific, even as he concluded that 2009 would be ''very, very difficult indeed."
