March 22, 2009
Decisions of Philippine Airlines to drop its first class service might now be seen as blessing in disguise as Asian heavyweights grapple for dwindling premium traffic which plummeted to almost 25% International Air Transport Association (IATA) figures showed. Within Asia, IATA found that premium travel was down 23.4 per cent while there had been a decline of 24.7 per cent across the Pacific.Premium airlines in Asia Pacific may cut more flights as demand from high-value passengers continues to decline sharply. IATA said there was a 16 per cent decline globally in travellers flying premium classes in January and the drop in Asia was the steepest - at 23 per cent.
According to Tony Tyler, chief executive of Cathay Pacific, has warned that the Hong Kong carrier might need to take “very difficult decisions” to be sustainable. Mr Tyler told staff in a newsletter that revenue outlook was “very poor” and it could take a long time before the carrier reached the bottom of the market.
Cathay Pacific, which reported the biggest annual loss this month in its 63-year history, has cut capacity, grounded flights, delayed the construction of a cargo terminal and offered staff unpaid leave.
Peter Harbison, executive chairman of Center for Asia Pacific Aviation (CAPA), said Cathay Pacific was not alone in contemplating wholesale changes to its strategy as the global economy struggles. Singapore Airlines saw a 20 per cent decrease in passenger numbers in February compared to a year ago. These dropped more than 20 per cent or by nearly 300,000 passengers in February compared with the same time last year.
He said that airlines may have to reschedule their equipment needs. Basically, “there will be a fundamental re-examination of the entire network model.” Grounding of aircraft may not be the best option as it would cost more than $400,000 a month to ground a single commonly used aircraft.
In contrast, Philippine Airlines, which adopted a different model, by taking off first class altogether continued to enjoy its traffic boom by registering a healthy load factor, this time announcing more flights to Vancouver while Singapore suspended it. In fact, majority of the airlines operating out of Manila are growing as new and additional flight schedules are announced, yet Manila is and never was a premium destination, having the lowest of the yields next to Indonesia among Asia Pacific countries. None of the legacy airlines operating in the Philippines announced suspended or reduced flights up to this date.
Having low yields is not however a cause for concern as airline operators flying out of Manila always managed to fly its aircraft full which make it a profitable destination, only that its not that big as having premium passengers on board. Tyler previously said that 1 premium passenger is equivalent to 5 economy class passengers, and as long as they can fill all the economy class they will continue to earn and to do that they have to reduce fares just to compete with low cost carriers.
Mr Harbison said that Cathay and Singapore airlines were particularly vulnerable because of their much heavier reliance on the premium market and its over reliance with Europe where bulk of premium passengers came. Premium travel between Europe and Asia was down 21.2 per cent.
He said that airlines may have to reschedule their equipment needs. Basically, “there will be a fundamental re-examination of the entire network model.” Grounding of aircraft may not be the best option as it would cost more than $400,000 a month to ground a single commonly used aircraft.
In contrast, Philippine Airlines, which adopted a different model, by taking off first class altogether continued to enjoy its traffic boom by registering a healthy load factor, this time announcing more flights to Vancouver while Singapore suspended it. In fact, majority of the airlines operating out of Manila are growing as new and additional flight schedules are announced, yet Manila is and never was a premium destination, having the lowest of the yields next to Indonesia among Asia Pacific countries. None of the legacy airlines operating in the Philippines announced suspended or reduced flights up to this date.
Having low yields is not however a cause for concern as airline operators flying out of Manila always managed to fly its aircraft full which make it a profitable destination, only that its not that big as having premium passengers on board. Tyler previously said that 1 premium passenger is equivalent to 5 economy class passengers, and as long as they can fill all the economy class they will continue to earn and to do that they have to reduce fares just to compete with low cost carriers.
Mr Harbison said that Cathay and Singapore airlines were particularly vulnerable because of their much heavier reliance on the premium market and its over reliance with Europe where bulk of premium passengers came. Premium travel between Europe and Asia was down 21.2 per cent.
Middle Eastern airlines continue to ride the wave because like, PAL, it too does not offer first class service to Manila and it always got its aircraft full when its leaves the Philippines. Even Europe bound KLM was not affected by the decline since it carried non premium passengers which may now include business travellers on travel downgrade. Data from Civil Aviation Authorities in the Philippines showed positive growth with more outgoing passenger traffic than incoming ones. Its projection of zero growth this year is even better than Bangkok, Hong-Kong and Singapore which expects a further decline.
It remains to be seen whether other airlines in the Asia-Pacific region can continue to survived the downward trend. Some may only be weeks away from grounding more aircraft from its fleet. It is projected that as much as 10 per cent of their aircraft will be grounded by the second half of the year as they grapple with weak revenues, falling load factors and excess capacity.
Meanwhile, Philippine Airlines suffers an acute shortage of its fleet, unable to ferry passengers whenever one of its Wide-body jets for long haul destinations, particularly the United States, suffers an unexpected problem that needs to be grounded for repair. Its expansion to the US was also constricted by its category 2 status of the FAA. It remains to be seen whether their new aircraft that is slated for delivery in November can ever fly to the US as originally planned. PAL intends to fly double daily by November to Los Angeles, and new service to San Diego as well as Chicago in 2010.
The International Air Transport Association, the international trade body representing 230 airlines, this week found that Asia was the worst affected region in terms of premium traffic reductions in the month of January.
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