Asian airlines feel effects of global slump - Travel - Brief Article - Statistical Data Included

Business Asia, Oct, 2001

AIRLINES AROUND the world are reeling in the wake of the terrorist attack on New York's World Trade Centre which, combined with an already precarious world economy, has left many airlines struggling to survive.

In Asia the situation appears to be relatively less dire compared to the USA or Europe, according to senior lecturer, Department of Aviation, University of NSW Rodger Robertson.

The present climate suggests a major slump is on the way for airlines over the next 12 months, and airlines in the USA and Europe are anticipating this and laying people off.

Asia's carriers have certainly been impacted by the terrorist attacks on the US in the short term, with several announcing lay offs and forecasting revenue dips. Korean Air, South Korea's largest carrier, has already announced restructuring plans, while rival carrier Asiana has also said it would look at lay offs and service reductions. Japan Airlines has cut flights to the US due to lower demand, while Malaysia Airlines has announced a focus on Asian routes amidst job cuts. Cathay Pacific has also not ruled out cutting back on routes and making retrenchments.

UNSW's Robertson says only once in the history of aviation has the industry not experienced growth in a year, and that was during the Gulf War.

"Aviation depends on economic circumstances and psychological circumstances," he said.

"The world tends to bubble on and everyone is comfortable, but every now and then big shocks happen."

Robertson says an example of a major shock was during the early 1970s, when OPEC raised the price of oil and there was some hijacking of Western aircraft.

"That caused a psychological slump, so there was a hiccup for aviation," Robertson said.

Another "hiccup" was the Gulf War, which caused a rise in oil prices as people became frightened of travelling due to anti-American sentiment from the Middle East.

The present situation is reminiscent of the others mentioned, although Robertson says it is a "peculiar set of circumstances" as the threat is ongoing and the economy is going down at the same time.

Professor Jason Middleton, head of the Department of Aviation at the University of NSW, says the world aviation situation is definitely tied to the economy, hence the uncertainty.

"International airlines' business will depend on business confidence in the world and people who go on holiday," he said.

"Due to the uncertainty, less people are going on holiday and people are travelling for business only if they have to ... if it doesn't improve, airlines will go under."

Robertson says the key to keeping airlines afloat is management -- if they are not well managed they can fall very heavily, especially as governments are not so involved as they were 20 or even 10 years ago. "If they (the airlines) are seen as being important for the nation, the government may step in ... many governments are worried about tourism, which is inexplicably linked to aviation," Robertson said.

He uses the example of the Asian Crisis of the late 1990s, when Philippine Airlines and Malaysian Airlines became "technically bankrupt", but their respective governments encouraged others to support them.

As far as the consumer is concerned, Robertson and Middleton have differing opinions.

Robertson says airfares will become cheaper because planes are empty, until such a time when the number of flights can be reduced.

Airlines will want to fill as many seats as possible, because a little revenue is better than none. "Whenever there is an excess of capacity, prices go down," Robertson says.

Middleton is of the opinion that consumers are going to have to pay higher prices on everything.

"The reality is, if there's less people flying the costs have to be spread ... even with cutting staff, costs are still going to be high, so (airlines) have to stop discounting," Middleton said.

"It costs real money to move airlines around the sky." When asked how long this aviation slump will continue for, both say it is uncertain.

Robertson says even if the situation between the USA and the terrorists is resolved quickly, it could be a matter of months before people regain confidence.