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Asian airlines in for a downturn next year

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October 27, 2008

Financial Crisis Impact:
Asian airlines in for a downturn next year

Asia's aviation sector is hurting from a sharp descent in passenger numbers but the full impact of a deepening global financial crisis is not likely to be felt until next year, AFP reported, quoting analysts.

Small carriers will be particularly vulnerable as people curtail travel plans, they added, predicting some airlines will not make it through.

"The biggest challenges right now are weakening passenger demand, particularly for first and business class travel, and continuing uncertainty about the global economic outlook ," said Andrew Herdman, director-general of the Association of Asia Pacific Airlines (AAPA).

"The next 12-18 months will be extremely difficult times for airlines and some won't survive the current crisis," said Herdman, whose AAPA represents 17 airlines in the region.

Shukor Yusof, an aviation analyst with credit rating agency Standard and Poor's, said he expects some airlines to defer aircraft orders or return leased planes as they reduce routes and flight frequencies.

"The weakest ones will not be able to maintain the business," he said.

The International Air Transport Association (IATA) said passenger volumes for Asia Pacific carriers dropped 6.8 percent in September, much sharper than the average 2.9 percent decline worldwide.

Asian airlines also carried 10.6 percent less cargo in September, worse than the drop in Europe and North America, as trade volumes fell sharply, IATA said.

"The deterioration in traffic is alarmingly fast-paced and widespread," IATA director-general Giovanni Bisignani said in a statement.

"We have not seen such a decline in passenger traffic since SARS in 2003," he added, referring to the health scare that grounded travellers in Asia.

Analysts fear that unlike during the SARS period, which lasted for a few months, the current crisis will last for a year or more.

Losses for global airlines this year may exceed IATA's earlier projection of 5.2 billion US dollars, with another further 4.1 billion dollars in losses seen in 2009.

Business class travel, a major cash-spinner for airlines, has become an early casualty of the crisis, especially with retrenchments and belt-tightening in the financial sector, analysts said.

Leisure travel is also suffering as tourists stay home or travel to nearer destinations.

Singapore Airlines said it carried 1.6 percent fewer passengers in September from a year ago.

Singapore's Changi Airport said it handled 2.89 million passengers in September, down 0.4 percent from last year -- the first decrease in monthly traffic since February 2004, the airport operator said.

Hong Kong's Cathay Pacific said passenger numbers in September dropped 0.7 percent year-on-year, while Australia's Qantas said the number of international passengers it carried fell an annual 6.4 percent in August.

"People in the source countries are beginning to say: 'Well, let's rethink what we're going to do for the holidays,'" said John Koldowski, an analyst with Bangkok-based Pacific Asia Travel Association.

"It will take a little bit of time because some have already booked their tickets. But if this progresses, we're going to see a much deeper contraction for 2009."

Tourism-related industries like hotels are likely to suffer as well.

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