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Qantas CEO sees super cycle

(Forimmediaterelease.net) Amid announcements of a 50% surge in annual profits and predictions of a 30% increase in earnings next year, came the significant observation by Qantas CEO, Geoff Dixon, that airline industry cyclicality “is probably not going to be there” in his outlook for the sector.

According to Dixon, the airline industry is benefiting from globalisation, which is entrenching a reliance on air travel and reducing the sector’s cyclical swings. The booming economies of China, India and Russia have contributed to a tight aircraft market, according to Dixon, with capacity shortages leading to rising load factors and yields. It is a view shared by Boeing CEO, Jim McNerney, who said last month that the current strong up-cycle is likely to extend for the next few years.

Contributing to Dixon’s view is that Qantas’ forward bookings until the end of the year are also looking buoyant, while Qantas is unlocking significant efficiencies as it transfers routes to Jetstar under its two-brand strategy. (The fact that group profits increased 50% while group capacity rose just 3.4% in 2006/07 underlines this).

Qantas’ international capacity contracted by 4.4% in the 12 months ended 30-Jun-07, while load factors rose 4.6 ppts to 81.4%. International passenger numbers carried by Qantas mainline in the period fell 6.4%, but RPKs rose 1.3%. This indicates the airline is carrying passengers longer distances on average, in line with its new route profile as it hands over more of its short-haul flying to Jetstar.

Meanwhile, two of Asia’s leading airlines, Singapore Airlines (SIA) and Cathay Pacific, are also taking (an enforced) breather in terms of capacity expansion this Northern Summer, ahead of the launch of significant growth plans in coming months.
In Jul-07, SIA’s capacity actually fell 0.5% year-on-year. It was attributed to a reduction in the number of B747-400 aircraft in the operating fleet and more spacious premium seating onboard B777-300ER aircraft on long haul routes. But going forward, SIA stated the month-on-month capacity reduction would return to growth, with more B777-300ERs joining the fleet and with the delivery of long-delayed A380s.

Cathay Pacific’s capacity in Jul-07 rose just 0.8% year-on-year, while passenger numbers were “very healthy” as corporate demand remained strong. According to the Hong Kong-based carrier, advance bookings suggest “another solid month in August”. Cathay too is set to embark on a major growth programme, with ten widebodies scheduled for delivery each year over the next five years.

Rarely has the airline industry been so uniformly bullish, but some caution is advisable, as some of the emerging markets deal with various growing pains.
China’s growth is being actively tamed by Beijing (as aviation infrastructure fails to keep up ahead of the Olympics); Indian carriers are taking a more rational approach to capacity deployment and pricing (to move to profitability); Russian aviation enters a period of structural change and consolidation; while Brazilian aviation is also undergoing reform.
Meanwhile, the extent of the impact on the wider economy of the debt bubble burst is not yet fully known. Even prior to the recent market jitters, several major LCCs, particularly in the US, moved to slow their growth plans in response to market softness. Time will tell if Dixon’s new (and much more optimistic) crystal ball on the aviation cycle is correct.
Copyright. © Centre for Asia Pacific Aviation

About Centre for Asia Pacific Aviation
The Centre for Asia Pacific Aviation (CAPA) was founded in 1990 and has since built an international reputation as the leading specialist aviation consultancy in the Asia Pacific, the Indian Subcontinent and Middle East regions. CAPA Consulting’s strategic advisory services are supported by the extensive information and data services provided by the Centre’s Market Research Unit to aviation industry leaders every day. The Centre also holds regular Aviation Leadership Summits, which provide unique opportunities for the exchange of ideas and experiences.

Head Office, Sydney:
Derek Sadubin, Chief Operating Officer
Aurora Place, Level 36, 88 Phillip St Sydney
PO Box N777, Grosvenor Place Sydney, NSW Australia 2000
Email: ds@centreforaviation.com
Southeast Asia Regional Office:
Richard Pinkham, Regional Director, Southeast Asia
Email: rp@centreforaviation.com
Indian Subcontinent and Middle East Office:
Kapil Kaul, CEO Indian Subcontinent & Middle East
Email: kk@centreforaviation.com
UK/Europe Office:
David Bentley, UK Associate
Email: db@centreforaviation.com
North America Regional Office:
Martti Raito, Regional Director, North America
Email: mr@centreforaviation.com
North Asia Representatives:
Korea: Kyung-sup Lee. Email: ks@centreforaviation.com
Japan: Reiko Sonoyama. Email: intermodal@nifty.com
More information is available on the Centre’s website: www.centreforaviation.com

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