Asia Pacific aviation may see dip in anticipated earnings in 2007/08: CAPA

The Centre of Asia Pacific Aviation (CAPA) has predicted that the anticipated growth in the Asia Pacific aviation sector, which has long been touted as the next big thing, will actually result in the depression of aviation earnings in the region for 2007 and 2008.

CAPA lists cost pressures, increasing liberalisation, rising capacity growth and rising competition from new entrants as the main reasons for a dip in earnings. "Long-haul profitability will be weakened by rising competition from Middle East carriers and an intensified focus on Asia by European and North American airlines, as well as increasing long-haul activity by the region's LCCs," says CAPA executive chairman Peter Harbison.

However, fuel costs, according to CAPA, is going to be less of an issue than it has been for the past year. CAPA predicts that the impact of fuel surcharges on revenue will be less in 2007 because of the market's continuing acceptance of rising fuel surcharges. It says that airlines will avoid lowering fuel surcharges, with many carriers citing volatility in fuel prices as a reason to maintain high surcharge levels.

According to Harbison, there is some justification for this reluctance to lower surcharges, given the initial lag in increasing charges as fuel prices rose. "But the key observation is the continuing strength of consumer demand, even despite the negative effect of oil price increases in the wider economy," he added.