Airline traffic growth to slow in 2006? - Time to cut surcharges

The Centre for Asia Pacific Aviation has warned that airlines should consider cutting their fuel surcharges on passenger tickets in the face of weaker than expected demand.

“It’s a message we’ll be putting to the dozens of airlines gathering for the annual Aviation Outlook Summit the week after next in Kuala Lumpur”, said the Centre’s Executive Chairman, Peter Harbison.

Recently freight carriers and certain airlines, such as Virgin Atlantic and Philippine Airlines, have already started to ease their surcharges, reflecting the lower level of jet fuel prices.

“But passenger airlines appear reluctant to move on passenger fuel surcharges. Yet the longer they hold off, the more they risk hurting forward demand, which is looking decidedly fragile in some markets”, said Mr Harbison.

“In some markets, fuel surcharges are actually making passenger bookings less predictable, which is leading carriers into the perverse situation where they are discounting underlying fares to fill their aircraft”, said Mr Harbison. “Another concern weighing on demand in some markets is the fear of a bird flu outbreak. China Southern has already stated the psychological impact on passengers of a possible outbreak, as warned by global health authorities, will reflect on November’s traffic data”.

“Reducing surcharges would provide a needed boost to travel demand, especially if the global economy continues to slow due to high oil prices”, said Mr Harbison.

The Aviation Outlook Summit is also a platform for government leaders to discuss how Asia will respond to the likelihood of an ‘open skies’ agreement between the EU and the US. Such an agreement could be reached as early as October 2006, and would create a single aviation market of nearly 750 million consumers from 26 countries, with rights for carriers to fly beyond the territory of the other to destinations in Asia.

“This evolution creates a dilemma for Asian governments and their airlines and it is a development which will happen quickly, so the region must be ready”, said Mr Harbison.

“We applaud the Singapore Government’s early response this week to encourage a faster and expanded timetable for aviation liberalisation in the ASEAN region. But it may not be enough, particularly if restructured US and EU carriers get together to form mega carriers with global reach. Asia Pacific airlines could be vulnerable to competition with carriers many times their size, while at the same time facing severe competition from LCCs on short-haul markets. It’s not a particularly pleasant outlook”, said Mr Harbison.

“The options for Asia could include consolidation, reversion to government ownership and/or mergers at the domestic level – all options will be on the table”, concluded Mr Harbison.

After almost a decade at the helm of Europe’s leading LCC, Ray Webster is one of the Summit’s Keynote Speakers and chose to attend this landmark event in Asia to share with Asia Pacific executives his experience and lessons from the easyJet success story.

In his presentation titled “Striving for excellence and innovation - learning from Europe's experiences”, Ray Webster will offer his views on competition between full service carriers, LCC subsidiaries and independent LCCs, innovations in killing costs and boosting ancillary revenues and in the future evolution in global aviation markets, including yields trends, and implications for Asia.

Ray Webster stated “this CAPA Summit is a very important event in the year for the region. We would expect that all the principal decision-makers from Asia Pacific and Middle East industry will be there. So, I am delighted to be a Keynote speaker and I am looking forward to sharing my experience at easyJet with the Summit participants and to discovering who this year’s winners are - especially the Low Cost Airline of The Year!”.

The 2nd annual Asia Pacific and Middle East Aviation Outlook Summit will be held in Kuala Lumpur on 5-6 December and features a high-level programme packed with aviation industry leaders.

See other recent news regarding: Centre for Asia Pacific Aviation, Fuel