Asia Pacific Airlines Profitability Fell in 2011

Preliminary financial performance figures compiled by the Association of Asia Pacific Airlines (AAPA) showed that Asia Pacific-based carriers in aggregate recorded US$4.8 billion in net profits in 2011, 47% lower than the record US$9.0 billion achieved in the previous year.

The surge in oil prices, and a weak cargo market, contributed to the fall in earnings.

Total revenues for the region’s carriers reached US$162 billion, 10% higher compared to the US$147 billion reported in 2010. Passenger revenues grew by 15% to US$121 billion, but cargo revenues fell by 1.4%, to US$22 billion in 2011.

Operating expenses increased by 15% to US$155 billion. The main cause of the increase was a 28% surge in fuel costs, to US$52 billion. The share of fuel costs as a percentage of total expenses rose by 4 percentage points to 34%, from 30% in the previous year. Non-fuel expenditures grew by 9.6% to US$103 billion.

For the year 2011, Asian airlines’ international passenger traffic, measured in revenue passenger kilometre terms, grew by 3.7%, whereas international cargo traffic, expressed in freight tonne kilometres, fell by 4.8%.

Commenting on the 2011 financial results, Mr. Andrew Herdman, AAPA Director General said, “Asia Pacific carriers continued to outperform the overall industry in 2011, with continued growth in passenger numbers, but profit margins were squeezed by high oil prices, as well as the impact of a weak air cargo market. Overall, Asian airlines in aggregate made combined profits of US$4.8 billion, but on revenues of US$162 billion, that represents only a 3% profit margin and a poor return on invested capital.”

Looking ahead, Mr. Herdman said, “Airlines around the world are still facing a number of significant challenges in 2012, including the effects of persistently high oil prices, and slower economic growth in the major developed markets. So far this year, Asian airlines have continued to benefit from stronger economic growth within the region, seeing further growth in international passenger numbers, but air cargo markets remain weak, with the result that operating margins remain under pressure. Airlines are responding by carefully matching capacity to changes in demand, and maintaining strict cost controls throughout the business.”

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