Asian carriers likely to get more traffic in event of war

  • Business
  • Saturday, 15 Mar 2003

SINGAPORE: Cathay Pacific Airways Ltd and other Asian carriers will probably retain more traffic than rivals in Europe and the US in the event of an Iraq war, helped by regional travel, an industry group said. 

The Association of Asia-Pacific Airlines (AAPA) said the region's airlines wouldn’t be harmed as much as US carriers if war breaks out. A US airline group said this week losses at American carriers may rise US$4bil to US$$10.7bil. 

A US-led war in Iraq may cause global air traffic to repeat its plunge of between 15% and 20% during the 1991 Gulf War, the International Air Transport Association has said. 

Asian airlines, with as much as three-quarters of their routes in the region, will hold out better and benefit from China's rising air travel, analysts and investors said.  

“Asian airlines will not suffer as badly in terms of traffic because a much smaller percentage of their traffic is US-dependent,'' Richard Stirland, director general of AAPA, said in an e-mail to Bloomberg. 

The group represents 17 carriers in the region, including Japan Airlines System Corp, the world's third-largest carrier, and Korean Air Co. The AAPA doesn't have its own estimates for the effect a war may have on earnings, and the US estimates are “in any case highly speculative, as they depend on so many unknowns,” Stirland said. 

Investor optimism about Asian airlines has helped their stocks. The Bloomberg Asia Pacific Airlines Index of 17 carriers has fallen about 3% this year, compared with a 21% decline in the equivalent index for European airlines and a 17% decline for US carriers. 

Asian airlines were probably the most profitable in the world in 2002, making US$2.6bil, compared with profit of US$1.4bil for European carriers and losses of US$7.5bil for US airlines, UBS Warburg said in a January report. Asian carriers are likely to remain the most profitable this year, the report said. 

In the first six months of the year ending March 31, the AAPA's member airlines probably made a profit of US$1.4bil, Stirland said. In the full year ended March 2002, they had a combined loss of US$721mil, the association said in its 2002 annual report. 

“We're still seeing economic growth and healthy traffic and there's China,'' said Pieter van Putten, chief executive officer at Morley Fund Management (Singapore) Ltd, which manages US$3.1bil in Asia excluding Japan. “Asian airlines generally look healthy, whereas many American ones can't say that.'' 

Van Putten said the better financial health of Asian carriers means they may capitalise on service reductions by US rivals. 

Even as European carriers like Deutsche Lufthansa AG plan to cut capacity and warn of lower bookings, some Asian airlines are adding flights. SIA said it would add capacity on some routes between March and October, partly by replacing aging Airbus SAS A310-300 planes with bigger Boeing 777s. – Bloomberg  

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