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Page 1: AAPA Annual Report 2009
Page 2: AAPA Annual Report 2009

9/F Kompleks AntarabangsaJalan Sultan Ismail50250 Kuala LumpurMALAYSIA

Telephone +603 2145 5600Facsimile +603 2145 2500Email [email protected]

www.aapairlines.org

ASSOCIATION OF ASIA PACIFIC AIRLINES

Page 3: AAPA Annual Report 2009

2009annual report

Page 4: AAPA Annual Report 2009

Air New Zealand

All Nippon Airways

Asiana Airlines

Cathay Pacific Airways

China Airlines

Dragonair

EVA Air

Garuda Indonesia

Japan Airlines

Korean Air

Malaysia Airlines

Philippine Airlines

Qantas Airways

Royal Brunei Airlines

Singapore Airlines

Thai Airways International

Vietnam Airlines

AAPAMEMBERS

Page 5: AAPA Annual Report 2009

contentsFinancialResults

04

Introduction

03

ExecutiveCommittee

02

FinancialStatement

06

Traffic Trends

07

52nd Assemblyof Presidents

10

Safety

17

Regulation

14

AAPA Fleet2009

12

Environment

21

Innovation

24

Outlook 2010

28

Page 6: AAPA Annual Report 2009

Association of Asia Pacific Airlines2

executive committee

Chew Choon SengChief Executive

OfficerSingapore Airlines

Robert YangChief Executive

OfficerRoyal Brunei Airlines

Tengku Dato’ AzmilZahruddin

Managing DirectorMalaysia Airlines

Tony TylerChief ExecutiveCathay PacificAirways

Haruka NishimatsuPresident & ChiefExecutive OfficerJapan Airlines

Page 7: AAPA Annual Report 2009

annual report 2009 3

introduction

This period has been one of themost difficult and challenging forairlines in the history of aviation.Unfolding over the past two years,the bursting of the credit bubble inthe US housing market triggereda global financial crisis, whichin turn led to a worldwidecollapse in consumer confidence.Consequently, the world hassuffered a synchronized globaleconomic slowdown in 2009, of aseverity not seen since the 1930’s.

As a result, starting in mid-2008,airlines have experienced aprolonged and painful period ofweaker demand for bothpassenger and cargo services.With load factors falling, airlinerevenues took a double hit fromboth declining traffic and loweryields.

Air cargo dropped precipitously inthe fourth quarter of 2008, andbottomed out at year end, downalmost 30% in tonnage terms. In2009, we have seen a slow butsteady recovery in cargo volumes,regaining some of the lost ground,but rates remain depressed.

Passenger traffic continued todeteriorate throughout the firsthalf of 2009 and has only recentlybegun to show some signs ofstabilisation. Demand for premiumpassenger services has beenparticularly weak, as businessescut back on travel costs.

Airlines responded, as they haveto previous downturns, byprogressively reducing capacityalong with efforts to stimulatedemand through highlycompetitive fares and discountedtravel packages.

Aircraft utilisation fell, forcingsome retirements of older aircraft,whilst others were temporarilyparked. Lower aircraft valuations

added to pressures on airlinesand aircraft leasing companies.Airframe manufacturers went intothe downturn cushioned by multi-year order backlogs, but havebeen forced to negotiate deferrals,and a small number of ordercancellations, as the industryseeks to adjust to the loss of atleast two years of expectedgrowth. This process has not yetrun its course.

At the same time, airlines madestrenuous efforts to cutcosts. Initiatives to trim staffcosts included reductions inperformance bonuses, unpaidleave schemes and, as a lastresort, staff retrenchments.

Meanwhile, oil prices, despitefalling back from the peakreached in mid-2008, haveremained exceptionally volatile,ranging from US$40 to US$80per barrel so far this year. Anumber of airlines sufferedsignificant losses on fuel hedgingprogrammes as a result.

Given all these negative factors,most airlines have been reportingfinancial losses, with IATA

estimating that the global airlineindustry will lose US$11 billion in2009. Asia Pacific airlines havebeen particularly badly affected,given their traditional strongreliance on premium passengertraffic and the air cargo business,the two worst affected marketsegments. A number of carriershave taken steps to strengthentheir balance sheets through avariety of new financing initiatives,in order to ride out the crisis.

Despite the severity of thedownturn, aviation continues toplay a fundamentally positive rolein the global economy every day,keeping air travel safe, secure andaffordable, and linking people andproducts to markets across theworld.

Once again demonstrating ourcustomary resilience in the face ofadversity, we look forward to thehopefully brighter days that lieahead.

Andrew HerdmanDirector General

“This period hasbeen one of themost difficultand challengingfor airlines inthe history ofaviation.

Page 8: AAPA Annual Report 2009

Association of Asia Pacific Airlines4

financial results

The airline industry was hard hit by the severe globaldownturn, suffering net losses totaling USD16.8 billionin 2008, in marked contrast to the record net profit ofUSD12.9 billion achieved in 2007.

Soaring crude oil prices, sharply lower passenger andcargo demand and stiff competition all contributed tothe extremely challenging operating environment.Crude oil prices were exceptionally volatile, andaveraged USD97 per barrel in 2008. The globaleconomic recession undermined both passenger andcargo demand, which saw declines of 1.7% inpassenger numbers and a 6.6% fall in air cargotonnage.

By region, US carriers were hardest hit, recordinglosses of USD9.5 billion, more than half the global total.Asia Pacific airlines reported USD5.5 billion in netlosses. European airlines as a group, on the other hand,managed to remain profitable, reporting an aggregateUSD0.2 billion in net earnings.

Losses suffered by the three largest carriers in MainlandChina, inclusive of fuel hedging losses, totalled USD4.2billion, compared to a combined net profit of USD0.8billion recorded in 2007.

Asia Pacific-based low cost carriers also facedchallenging market conditions in 2008, with Virgin Blueand Air Asia reporting an aggregate net loss, includingfuel hedging losses, of USD242 million, compared to anet profit of USD286 million recorded in 2007.

AAPA OPERATING REVENUE

AAPA consolidated operating revenues increased by3.6% to USD100.1 billion, from USD96.6 billionreported in 2007. Passenger revenues were 7.1%higher at USD73.8 billion, whereas cargo revenuesdeclined by 7.2% to USD16.2 billion.

AAPA airlines recorded an 8.8% increase in averageyields to 88.5 US cents per revenue tonne kilometre(RTK), but this was not sufficient to compensate forsharply higher fuel costs.

140 -

120 -

100 -

80 -

60 -

40 -

20 -

0 -

-20 -

Operating Performance of Asia Pacific and AAPAAirlines 2008USD billion

Asia PacificAAPA

ExpensesRevenue Operating Profit

100.1

-1.2

101.2

124.2

-4.8

129.0

140 -

120 -

100 -

80 -

60 -

40 -

20 -

0 -

-20 -

AAPA Systemwide Operating PerformanceUSD billion

20082007

ExpensesRevenue Profit

96.66.2

90.4

100.1

-1.2

101.2

8 -

6 -

4 -

2 -

0 -

-2 -

-4 -

-6 -

-8 -

-10 -

-12 -

Airline Net Profit by Operator RegionUSD billion

2004 2005 2006 2007 2008

US Europe Asia Pacific Source : IATA

Page 9: AAPA Annual Report 2009

annual report 2009 5

OPERATING EXPENSES

Consolidated AAPA operating expenses rose by 12.8%to USD101.2 billion in 2008. Historically the largest costitem, fuel costs soared 44% in terms of unit costs to21.7 US cents per ATK as a result of the spike in crudeoil prices. Fuel costs accounted for 38% of total costsfor AAPA carriers. Non-fuel costs grew by 3.2% to 37.7US cents per ATK. Staff costs, the largest non-fuel costcomponent, declined by 7.5% to USD11.7 billion, witha corresponding 7.4% decline in averagecompensation per employee. Total unit cost was 59.4US cents per ATK, up 15.2% in 2008.

YIELD AND LOAD FACTORS

Average AAPA passenger and cargo load factorsdeclined by 2.1 pp and 1.9 pp respectively to 73.2%and 56.6%, as the decline in traffic demand outstrippedrelated capacity adjustments.

Overall, the average AAPA load factor was 66.4%,dipping below the breakeven load factor of 67.2%.

AAPA members’ overall yield improved 8.8% to 88.5US cents per RTK in 2008. The increase was mainlyattributable to higher passenger yields, up 10.1%,which more than offset the decline in cargo yields.

6.7

AAPA Systemwide Staff Compensation andUnit CostsUSD thousand

2004 2005 2006 2007 2008

Staff Unit Cost(US cents per ATK)

50.7 51.6 52.758.8

54.4

Average Compensationper Staff (USD thousand)

6.8 6.87.2

6.8

70 -

68 -

66 -

64 -

62 -

60 -

%

70 -

60 -

50 -

40 -

30 -

20 -

10 -

0 -

2004 2005 2006 2007 2008

AAPA Systemwide Overall Load Factor andBreakeven Load Factor

67.2

66.4

68.2

66.6

68.2

63.4

68.4

64.4

68.5

65.5

Overall LF

2007 2008

AAPA Fuel Costs as Percentage of Total Costs

29%

71% 62%

38%

Fuel

Breakeven LF

Others

Page 10: AAPA Annual Report 2009

Association of Asia Pacific Airlines6

financial statement

COMBINED AAPA MEMBER AIRLINES SYSTEMWIDE FINANCIAL RESULTSCalendar Years 2004 to 2008 (USD Million)

2008DESCRIPTION 2004 2005 2006 2007 2008 Growth

%

A. INCOME STATEMENT

OPERATING REVENUE 68,098 73,778 84,610 96,564 100,050 3.6Passenger 46,730 50,630 59,302 68,901 73,800 7.1Cargo 11,849 13,130 14,542 17,400 16,151 (7.2)Others 9,520 10,018 10,766 10,263 10,099 (1.6)OPERATING EXPENSES 64,130 72,069 80,911 90,394 101,243 12.0OPERATING PROFIT 3,968 1,709 3,699 6,169 -1,193 (119.3)Other Income (Expenses) 599 (144) 1,114 (1,031) (4,335) –NET PROFIT (LOSS) AFTER TAX 3,606 1,075 3,478 3,934 -4,803 13.1

B. BALANCE SHEET

TOTAL ASSETS 100,439 107,501 119,372 131,286 132,511 0.9Current Assets 23,400 26,552 30,451 34,380 31,735 (7.7)Cash and Bank Deposits 8,981 9,841 11,681 12,899 11,928 (7.5)Inventory 2,551 2,739 2,812 3,080 3,137 1.8Other Current Assets 11,867 13,973 15,957 18,402 16,670 (9.4)Long Term Assets 8,720 9,089 9,176 9,950 11,969 20.3Net Fixed Assets 63,344 66,864 73,666 80,252 81,110 1.1Other Assets 4,975 4,996 6,080 6,704 7,698 14.8TOTAL LIABILITIES 70,304 75,129 81,855 92,270 101,179 9.7Current Liabilities 25,636 29,069 34,822 40,975 45,510 11.1Long Term Liabilities 38,850 40,547 40,144 44,417 48,687 9.6Other Liabilities 5,819 5,513 6,888 6,878 6,982 1.5SHAREHOLDERS FUNDS 30,135 32,372 37,518 39,016 31,332 (19.7)

C. OPERATING STATISTICS

AVERAGE STAGE LENGTH (KM) 1,952 1,996 1,981 1,984 2,003 0.9AVERAGE FARE in USD 207 220 234 245 270 10.3PAX YIELD in US cents / RPK 7.6 7.9 8.8 9.6 10.5 10.1CARGO YIELD in US cents / FTK 25.9 28.0 29.7 33.1 33.3 0.5TOTAL YIELD in US cents / RTK 66.4 69.5 76.0 81.3 88.5 8.8UNIT REVENUE in US cents / ATK 45.3 47.3 51.9 55.5 58.7 5.8UNIT COST in US cents / ATK 42.7 46.2 49.7 51.9 59.4 14.4OVERALL LOAD FACTOR 68.3% 68.0% 68.4% 68.2% 66.4% (1.9)BREAKEVEN LOAD FACTOR 64.3% 66.4% 65.4% 63.9% 67.2% 3.3

SOURCE : MIWG Systemwide Financial Results

Notes : a) 2008 includes data from 17 member airlinesb) Currency exchange rates use the IATA mean rate for the corresponding 12-month period, except for VN datac) pp = percentage points

Page 11: AAPA Annual Report 2009

annual report 2009 7

traffic trends

“Starting in mid-2008, airlines haveexperienced a prolonged and painfulperiod of weaker demand for bothpassenger and cargo services.”

2008 was a tale of two halves. The first half of theyear saw AAPA carriers post a moderate increaseof 3% in international passenger numbers and RPK,with the passenger load factor holding steady at75.9% on carefully managed capacity. Traveldemand then weakened significantly as a result ofthe global economic slowdown. In the second halfof 2008, international passenger numbers tumbledby 7.0% whilst international RPKs fell by 5.9%. Theaverage passenger load factor fell by 3.8 pp to74.0%, despite a year-on-year capacity reductionof 1.1%.

For the first six months of 2009, the impact ofInfluenza A(H1N1) compounded the airlines’ woes,contributing to a 7.6% contraction in globalinternational passenger traffic in RPK termsfollowing a slight growth of 1.6% in 2008. Theoverall passenger load factor fell by 2.9 pp to72.6%, as falling passenger demand outpacedcapacity cuts.

Asia Pacific airlines were hit particularly hard, withAAPA members’ reporting a 12.6% decline ininternational passenger RPK, compared to an overallindustry decline of 7.6% in the first half of 2009.

PASSENGER TRAFFIC

Airline traffic trends were reversed after hitting a peakin the early months of 2008. The global financial crisistook its toll on trading activities, cross-countryinvestments and the tourism industry, contributing tothe almost flat 0.8% growth in the total number ofpassengers carried on scheduled services worldwidein 2008, compared to a 6% gain in 2007.

AAPA member airlines saw a 2.2% dip ininternational passenger numbers to 140.9 million.AAPA international passenger traffic in RPK termsdeclined by 1.4%. Capacity increased by 1.4% andthe average passenger load factor declined by 2.1pp to 75.0%.

AAPA’s international premium traffic numbers fell by4.1%, after a 7.2% increase in 2007. Premium trafficfell by 4.6% on intra-Asia Pacific routes, and by3.3% on long haul interregional routes.

For intra-Asia Pacific traffic, AAPA passenger numbersfell by 2.4% to 91.3 million. China traffic, a major partof AAPA members’ intra-Asia Pacific traffic, fell by11.9% following strong growth of 15.2% in 2007.

Growth of AAPA inter-regional passenger numberswas almost flat, at 0.2% to 34.3 million in 2008.Traffic growth for the Indian subcontinent, up 3.0%,and the Middle East/Africa, up 10.8%, were offsetby declines on long haul US and European routes,which slipped by 3.3% and 0.3% respectively.

Page 12: AAPA Annual Report 2009

Association of Asia Pacific Airlines8

During the first half of 2009, the number of passengerstravelling on AAPAmembers’ intra-Asia Pacific routesfell by 13.8%. Northeast Asia-Southeast Asia routesposted a decline of 17.0%. AAPA’s China traffic fell by18.4% during the first six months of 2009, comparedwith the 11.9% drop in 2008.

Similar trends were reported on AAPA inter-regionalfigures, with passenger numbers contracting by10.9% in January-June 2009 against a marginal0.2% growth for the year ended December 2008.

Premium travel fell at an even faster pace. For the firsthalf of 2009, AAPA members reported a shocking27.4% drop in premium passenger numbers, muchworse than the 4.1% decline seen in 2008.

CARGO TRAFFIC

The slowdown in international trade took its toll onglobal air cargo traffic, as reflected in the modest1.1% rise in cargo tonnage carried on systemwidescheduled services to 41.9 million tonnes in 2008,from a 3.6% gain in 2007, according to ICAOpreliminary estimates.

AAPA international cargo traffic underperformed theindustry average, with FTKs declining by 6.7% in2008. Cargo capacity was reduced by 5.4%,resulting in a moderate 1.0 pp fall in the averagecargo load factor to 65.5%.

Cargo carried on US and European routes recordeddeclines from as early as June 2008, culminating indouble-digit declines during the last few months ofthe year.

Japan - Korea

Hong Kong - Taiwan

Korea - China

Japan - United States

Australia - Singapore

Australia - New Zealand

Japan - Taiwan

Indonesia - Singapore

Japan - China

Korea - United States

Growth Rate %

1.7

-7.5

-10.0

-7.2

10.4

8.0

1.9

3.7

-13.6

0.3

AAPA Top Ten Passenger SectorsBetween Two Economies2008

20072008

0

Passenger numbers (million)

2 4 6 108

International Passenger Traffic Growth Rate Trends by RegionRPK % Change

IATA Asia Pacific Europe N. America M. East AAPA

-20

-15

-10

-5

0

5

10

15

20

25

Jan-

07

Feb-

07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Page 13: AAPA Annual Report 2009

annual report 2009 9

AAPA intra-Asia Pacific cargo traffic dipped by 2.9%to 4.5 million tonnes in 2008. AAPA’s China cargotraffic fell by 1.1%, after a healthy 15.7% growth in2007.

Reflecting major inter-links between the NortheastAsian and US economies on international trade, theKorea-US sector topped the list as the largest tradelane with more than 460,000 tonnes carried.

During the first six months of 2009, globalinternational air cargo traffic deteriorated sharply,with FTKs falling by 20.6% compared to the moremodest 4.0% decline in 2008. Slower capacityreductions of 10.4% resulted in a 3.6 pp decline inglobal cargo load factor to just 45.3%.

AAPA international freight traffic registered a 22.6%decline in FTK terms, outpacing the 6.7% fall in2008. Capacity was reduced by 16.8% in theJanuary-June 2009 period, resulting in a 4.7 ppdecline in the average cargo load factor to 62.3%.

For the intra-Asia Pacific sector, AAPA cargotonnage fell by 18.6% in January-June 2009, from a2.9% decline in 2008, with most routes reportingsharp declines.

AAPA cargo tonnage on inter-regional routes fell by21.3% for the first half of 2009, compared to a 5.2%decline in 2008. Cargo volumes to/from the USmarkets experienced the largest fall (-25.6%)followed by the European markets (-22.8%).

Despite the overall decline for the six-month period,month-to-month statistics revealed a tentativelyimproving scenario, with AAPA members’ FTKdeclines moderating from -27.8% in January 2009to -17.2% in June 2009.

International Cargo Traffic Growth Rate Trends by RegionFTK % Change

Korea - United States

Korea - China

Japan - Korea

Taiwan - United States

Japan - United States

Hong Kong - Taiwan

HongKong -UnitedStates

Japan - China

Hong Kong - Japan

Hong Kong - Korea

Growth Rate %

-8.8

5.3

-7.6

-14.2

-11.3

-8.5

6.0

2.1

-2.4

2.3

AAPA Top Ten Cargo SectorsBetween Two Economies2008

0

Cargo Tonnage (000)

120 240 360 600480

IATA Asia Pacific Europe N. America M. East AAPA

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Jan-

07

Feb-

07

Mar

-07

Apr

-07

May

-07

Jun-

07

Jul-0

7

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep

-08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

20072008

Page 14: AAPA Annual Report 2009

Association of Asia Pacific Airlines10

52nd assembly of presidents

EVA Air played host to the 52nd

Assembly of Presidents on 13-14

November 2008 in the city of

Taipei, with nearly 200 delegates

from various sectors of the

aviation industry present at the

event.

CEOs and senior executives

of the AAPA member airlines,

as well as aviation industry

partners including regulators,

manufacturers, suppliers, airports

cultural performances and were

appreciative of the warm and

generous hospitality of their Taipei

hosts.

The opening ceremony included

remarks by Mr. Oliver Fang-Lai Yu,

Administrative Deputy Minister of

the Ministry of Transportation and

Communications, emphasising

the positive role played by aviation

in economic and social

development.

year. Industry profitability was

under severe pressure, with Mr.

Herdman warning that, “We have

already seen a number of airline

failures. Some others won’t

survive the current crisis.”

Once again facing turbulent

times, Asia Pacific carriers were

responding appropriately, by

making careful adjustments to

both capacity and route

networks, as well as seeking

further operational cost savings.

and other service providers

thoroughly enjoyed the

opportunity to exchange views

and reinforce established industry

relationships. The mood of the

meeting was friendly and

constructive, in spite of the

difficult times confronting the

airline industry.

In addition to serious discussions

on industry matters, delegates

were treated to some spectacular

In his keynote address, Mr.

Andrew Herdman, Director

General of the Association of Asia

Pacific Airlines, noted that

following several years of steady

growth, the situation had abruptly

reversed. A slowing global

economy was proving extremely

challenging for airlines around the

world. The growth in passenger

numbers was just 2% in 2008,

while cargo volumes had fallen

below the levels of the previous

Mr Herdman emphasised AAPA’s

commitment to act as the trade

association for all Asia Pacific

based international airlines,

regardless of business model,

and said the Association was

always willing to welcome new

members. AAPA continued to

play an important and valuable

role in ensuring that the region’s

views are heard and given proper

weight in international debates on

key aviation policy issues.

Page 15: AAPA Annual Report 2009

annual report 2009 11

Mr Olivier Onidi, the European

Commission’s Head of Unit for

Internal Markets, Air Transport

Agreements and Multilateral

Relations delivered a wide

ranging and thought-provoking

presentation on various aviation

policy issues. Mr. Onidi also took

part in a lively and entertaining

CEO panel discussion moderated

by Tom Ballantyne of Orient

Aviation, together with Mr. Chew

Choon Seng (Singapore Airlines),

Mr. Idris Jala (Malaysia Airlines),

and Mr. Pandit Chanapai (Thai

Airways International).

AAPA ASSEMBLY OF PRESIDENTS

RESOLUTIONS

At the conclusion of the

Assembly, AAPA member airlines

strongly expressed their collective

views on major industry policy

topics, passing the following

resolutions:

Financial Strain on Industry

AAPA called on governments and

service providers to refrain from

putting further financial strain on

the aviation industry through

excessive taxes and charges. The

Association additionally called for

airports to adopt transparent, fair

and reasonable charges in

accordance with ICAO principles.

Air Traffic Management

Airspace congestion, delays and

environmental pressures remain a

major challenge for air carriers.

AAPA called upon governments

to collaborate and co-operate

with stakeholders on the

development of future ATM and

infrastructure improvements with

the objective of ensuring proper

harmonisation and technical

inter-operability.

Air Cargo Security

Noting that globally, airlines

transport goods representing

35% by value of international

trade, AAPA called on

governments to establish aviation

security measures in a manner

that strikes a balance between

the requirements of national

security and the need for efficient

cargo facilitation.

Passenger Facilitation

Recognising that the global airline

industry transports 2.2 billion

passengers every year, AAPA

called on governments to

embrace the use of new

technologies to streamline the

passenger travel experience and

at the same time enhance border

security.

Page 16: AAPA Annual Report 2009

Association of Asia Pacific Airlines12

AAPA fleet

The effects of the global economicdownturn, volatile fuel prices andfalling passenger and cargo yieldshas forced airlines to reducecapacity, delay new aircraftdeliveries, and retire or parkaircraft to remain competitive. Thecurrent AAPA fleet, includingregional and turboprop aircraft,totalled 1,782 aircraft. This is madeup of 937 wide-bodied aircraft,including Combis, 547 narrow-bodied, 158 turboprop aircraft and140 pure freighter aircraft. JapanAirlines tops the list with 292aircraft, followed by QantasAirways (233), All Nippon Airways(212), Cathay Pacific Airways(124), Korean Air (124), andSingapore Airlines (119).

The majority of AAPA memberairlines’ fleets only saw minorchanges in numbers in 2009.

Royal Brunei Airlines and EVA Airsaw their fleet remain unchanged,while four airlines: Dragonair,China Airlines, Asiana Airlines andKorean Air saw reductions due tothe retirement of older aircraft.All Nippon Airways and JapanAirlines, on the other hand, sawincreases in fleet size due to theconsolidation of smaller domesticoperations. Qantas Airways’ fleethas also increased due to thegrowth of its Jetstar and regionaloperations.

Boeing continues to dominateAAPA member airlines’ fleet typewith a 65% market share, whileAirbus currently accounts for26% of the overall fleet.Bombardier is the leadingsupplier of regional andcommuter aircraft for AAPAmembers.

Orders have been placed for over480 new aircraft, including theA330, A350, A380, B737 NG,B777 and B787, which arescheduled for delivery in phasesup to 2013.

The B747 (322 aircraft) and B777(298 aircraft) remain the mostpopular wide-bodied passengeraircraft among AAPA memberswith an additional 28 B777 and 10B747 to be delivered in thecoming five years. Firm orders forB737-NG (103) and A320 (64)aircraft to be delivered by 2013indicates further demand fornarrow-bodied aircraft typesamong AAPA members. In termsof newer aircraft types, AAPAcarriers have placed firm ordersfor the A380 (43 aircraft), the longawaited B787 (122 aircraft) andA350 (55 aircraft).

PASSENGERAIRBUS BOEING ATR

AIRLINE B717/ Q200/A300 A319 A320 A321 A330 A343 A345/6 A380 B737 B737NG B747 B744 B767 B777 DC9 MD90 ATR-72 Q100 300

AIR NEW ZEALAND 12 16 7 5 8 11 23ALL NIPPON AIRWAYS 29 20 24 15 55 43 5

ASIANA AIRLINES 11 14 8 5 2 7 10

CATHAY PACIFIC AIRWAYS 32 15 23 30

CHINA AIRLINES 17 6 10 13

DRAGONAIR 10 6 14

EVA AIRWAYS 11 3 14 3

GARUDA INDONESIA 10 35 20 3

JAPAN AIRLINES 22 23 25 6 37 46 46 14 16 4 1 1

KOREAN AIR 8 19 30 21 23

MALAYSIA AIRLINES 14 37 3 13 17

PHILIPPINE AIRLINES 4 18 8 4 5 3 5 4

QANTAS AIRWAYS 33 4 22 3 24 38 30 29 11 21

ROYAL BRUNEI AIRLINES 2 2 6 1

SINGAPORE AIRLINES 8 5 8 9 77

THAI AIRWAYS INTERNATIONAL 17 21 10 6 18 20 2

VIETNAM AIRLINES 10 15 4 10 11

TOTAL BY AIRCRAFT TYPE 47 6 125 39 188 25 15 11 166 150 6 199 148 298 14 30 24 4 53

AS OF NOVEMBER 2009

Page 17: AAPA Annual Report 2009

The average aircraft age of theAAPA fleet continues to berelatively low at 9.4 years, withSingapore Airlines having theyoungest fleet with an averageage of 5.9 years. The averagefleet age is expected to remainlow in the coming years due toAAPA member airlines’continuous investment in newtechnology aircraft to meetcustomer demand, enhance fuelefficiency and improveenvironmental performance.

COMBI FREIGHTERBOMBARDIER EMBRAER OTHERS BOEING AIRBUS BOEING Total by Airline

Airline CodeQ400 CRJ200 E170 B744 A300 B733 B747 B744 B767 MD11

18 100 NZ14 7 212 NH

3 7 1 68 OZ

24 124 CX

20 66 CI

1 31 KA

4 9 8 52 BR

68 GA

11 9 6 15 1 7 3 292 JL

1 22 124 KE

4 2 90 MH

5 47 PR

14 4 233 QF

10 BI

12 119 SQ

94 TG

2 52 VN

44 9 6 35 8 0 4 5 104 11 8 1782 TOTAL

Other AsiaPacific12%

AAPA 42%

America 9%

Global B747 Fleet By Operator Region

Europe 24%

Middle East 8%

Africa 5%

AAPA 30%

America 13%

Global A330 Fleet By Operator Region

Europe 27%Middle East 14%

Africa 2%

Other AsiaPacific7%

AAPA 38%

America 21%

Global B777 Fleet By Operator Region

Europe 16%

Middle East 16%

Africa 2%

Other AsiaPacific14%

annual report 2009 13

Page 18: AAPA Annual Report 2009

Association of Asia Pacific Airlines14

excessive regulation

chronically poor profitability of theairline industry. Looking to thefuture, it seems clear that furtherliberalisation is needed to addressthese fundamental challenges andpave the way for the successfulevolution of the industry.

In the past year, governmentsand regulatory agencies havecontinued to progress severalindustry regulatory initiatives,some unfortunately introducedwith little or no industryconsultation.

Flying is not only the safest formof travel, but also highly secure.However, governments havedeveloped a habit of imposinglayer upon layer of additionalsecurity requirements on aviation.Too often, such measures seemto be reactive in nature, based onfear rather than a balancedevaluation of threats and riskassessment. There is a reluctanceto subject proposed new securityinitiatives to an objectiveappraisal of the related costsweighed against the benefits tosociety.

The US Department of HomelandSecurity (DHS) in 2008 issued aNotice of Proposed Rulemaking(NPRM) proposing to make itmandatory for airlines to collectand submit biometric data ofdeparting foreigners at airportsand seaports. AAPA, working withother industry stakeholders,raised vigorous objections toairlines being made to undertakewhat was clearly a governmentresponsibility. After a coordinatedlobbying campaign, funding forthe programme was blocked, withCongress instructing DHS toconduct additional pilot studiesbefore final recommendations aremade. AAPA will continue tolobby on behalf of airlines againstthis ill-conceived initiative.

“ Airlines need greaterfreedom to operatejust like any otherindustry.”

The airline industry has alwaysbeen subject to close scrutinyand regulatory oversight, notleast because of the needto maintain the highestsafety standards. Unfortunately,regulation of the industry did notstop there, instead permeatingalmost every aspect of thebusiness. Such rules andregulations are promulgated bynational governments, as well asinternational bodies.

Airlines face a number offundamental restrictions on howthey do business, with limits onways in which they can accessand serve markets, governedby a historical aero-politicalregulatory framework ofbilateral air services agreements.

National ownership and controlrequirements prevent airlines fromfully accessing internationalcapital markets, resulting in ahighly fragmented industry.International mergers, commonlyseen in other sectors, simplycannot take place. Whilstprogressive liberalisation has atleast allowed the industry toexpand to meet growing demand,the shape of the industry reflectsthese distortions, and may alsoaccount for other structuralweaknesses which underlie the

Page 19: AAPA Annual Report 2009

annual report 2009 15

takes into account therepresentations and submissionsmade by various industry groupssince the NPRM was firstissued in 2005. A number ofother governments have alsointroduced additional reportingrequirements in response to theswine flu outbreak.

The fundamental problem withall these reporting requirementsis the lack of internationalharmonisation, leading toexcessive implementation costsand continuing confusionamongst passengers regardingthe proliferation of both paperforms and a multiplicity ofelectronic reporting requirements.AAPA will continue to press for

closer consultation and improvedinternational coordination todevelop common interfaces anddata standards.

Another area of concern is theproliferation of legislation underthe heading of consumerprotection. Some years ago,the EU introduced regulationson denied boarding andcompensation for cancellationsand long delays. Even today,there are continuing legalarguments regarding theinterpretation of those rules,including the definition of“extraordinary circumstances”and the relevant jurisdiction to beapplied to international journeys.Meanwhile, both the US

Airlines are already required tosubmit extensive informationabout passengers to governmentsaround the world in accordancewith various Advance PassengerInformation System (APIS)requirements, in some casesincluding more comprehensivedata on travel plans contained inairline passenger name record(PNR) data.

The US Government has recentlymade additional demands, withthe introduction of new andoften overlapping requirements,including the Electronic Systemfor Travel Authorization (ESTA), aform of e-visa for travellers fromcountries previously exemptedunder the US Visa WaiverProgram. The US Governmenthas also introduced its SecureFlight scheme, whereby allpassenger data has to besubmitted for pre-clearanceagainst US security watchlists.

With renewed attention beinggiven to health crisesand communicable diseasepandemics, the US Centers forDisease Control (CDC) is planningto mandate some form ofadditional advance passengerdata transmission by airlines. TheFinal Rule is imminent, and it ishoped that its implementation

Page 20: AAPA Annual Report 2009

Association of Asia Pacific Airlines16

Congress and the CanadianHouse of Commons areproposing to implement their ownversions of a Passenger Bill ofRights relating to long delays.Other consumer relatedlegislation covers the handling ofpassengers with disabilities orwith reduced mobility. Thechallenge, particularly forinternational airlines, is how tocomply with often inconsistentand contradictory requirements.

Despite the fact that airlines ingeneral struggle to earn positivereturns on invested capital, manygovernments continue to treatthe aviation industry as acash cow and convenientrevenue collection mechanism.Government taxes and chargesare estimated to account foraround 15% of the average ticketprice, even though the industryalready pays separately and in fullfor its own infrastructure,including airports and airnavigation services.

A number of governments haveannounced plans to introduceadditional taxes on travel under theguise of “green” initiatives, one ofthe most controversial being theUK Air Passenger Duty (APD),which will cost passengers US$4billion annually. This can only bedescribed as a blatant money-grab; none of the moneycollected is channeled towardsenvironmental initiatives. In anotherunwelcome development, theUS authorities have recentlyintroduced a US$10 charge onforeign visitors from visa waivercountries, supposedly to fundtourism promotion. Elsewhere inthe world, the Indian governmentimposed new fees withoutproper consultation with industry,whilst the Maldives governmentannounced that it intends tointroduce an “environmental tax”on tourists, even though tourism isone of the key contributors to thelocal economy.

More encouragingly, plans byseveral other governments to levydeparture taxes on air travellers

were withdrawn after it becameclear that the damage to thewider economy would far exceedthe revenues raised.

AAPAwill continue to lobby againstexcessive and unjustified taxesand charges, working closely withcolleagues in IATA and otherindustry stakeholder organisations.

Excessive regulations severelyconstrain the way in which airlinesoperate in what should be a moreopenly competitive marketplace.This limits consumer choice, atthe same time increasing overallcosts. Airlines need greaterfreedom to operate just like anyother industry, in a globallycompetitive sector. Governmentsneed to fundamentally re-thinkthe rationale for any newregulatory initiatives, and takecare to ensure that the intendedbenefits exceed the overall costsof implementation, taking intoaccount the wider social andeconomic benefits of meeting thegrowing demand for air travel.

“Governments need tofundamentally re-think therationale for newregulatory initiatives.”

Page 21: AAPA Annual Report 2009

annual report 2009 17

safety

The year 2009 opened with the

near disaster of US Airways flight

1549 with a water landing on the

Hudson River following a bird

strike after takeoff from New

York's LaGuardia airport. All

passengers onboard survived the

ditching, safely evacuated the

aircraft and were rescued by

passing ferries and local boats.

Although this was a highly

unusual incident, it clearly

demonstrated the value of an

experienced and professional

crew, good decision making,

good communications, and

situational awareness.

As of October 2009, there had

been 8 major accidents

worldwide this year involving

Western-built jet aircraft, which

had resulted in 410 passenger

fatalities. In addition, two

accidents involving Russian-built

aircraft (Tu154 and Il62) also led

to significant fatalities.

The accident rate in the first half

of the year was somewhat higher

than the established trend of

recent years, leading some to

question whether the industry’s

record of steady improvements in

safety performance was in danger

of being reversed. Pressure

mounted to review and potentially

overhaul core elements of the air

transport industry’s approach to

aviation safety management

developed over the past decade.

However, based on the latest

available data, the projected

results for the full year seem likely

to be in line with previous trends in

safety performance improvement.

Reviewing the industry’s safety

performance over recent years (see

figures 1 & 2), the average industry

major accident rate has improved

steadily, representing almost a

30% improvement since 2003. In

2008, the industry experienced an

accident rate of one accident for

every 1.6 million flights. This was a

slight deterioration compared to

the 2007 performance; however,

the total number of fatalities from

aviation accidents fell from 576 in

2007 to 396 in 2008.

Asia Pacific carriers’ safety

performance continues to

improve and is comparable to

industry standards. AAPA carriers

achieved the very highest

standards of safety in 2008, and

in 2009 continue to maintain the

level of vigilance needed to

ensure safety performance

remains comparable with major

airlines in the United States and

Europe.

“Flying is thesafest form oftravel, but thereis no room forcomplacency.Our target iszero accidentsand zerofatalities.”

Fig. 1

INDUSTRY SAFETY RECORD 2003-2009Western-Built Jet Aircraft

2003 2004 2005 2006 2007 2008 2009*

Major Accidents 18 18 18 15 14 17 8

Accident Rate^ 0.87 0.78 0.76 0.61 0.52 0.63

Fatal Accidents 7 5 8 8 7 10 7

Fatalities 484 235 757 549 576 396 410

^ per million sectors

* year to date 31 October 2009

Page 22: AAPA Annual Report 2009

Association of Asia Pacific Airlines18

The travelling public increasingly

recognises that flying is the safest

form of travel, but there is no room

for complacency. Our target is zero

accidents and zero fatalities. From

an industry standpoint, safety

remains the number one priority.

The industry’s excellent safety

record is the result of concerted

efforts by regulatory agencies,

the aviation industry and

other safety stakeholders to

continuously develop new

technology, operational standards,

staff training and the sharing of

best practices. Overall, whilst we

can learn a great deal from a

forensic analysis of accidents and

incidents, the major emphasis has

moved towards a prognostic

approach to safety management.

The aim is to evaluate risk factors,

and identify precursors to potential

accidents, so that appropriate

action can be taken, even before a

safety incident occurs.

Close collaboration across the

industry is a key feature in

working towards this shared

objective. Examples of such

programmes include the US

Commercial Aviation Safety Team

(CAST), European Commercial

Aviation Team (ECAST) and the

ICAO Cooperative Development

of Operational Safety

and Continuing Airworthiness

Programme (COSCAP).

Fig. 2

IMPROVING SAFETY PERFORMANCE TRENDS 2001-2009Major Accident Rates by Operator RegionWestern-Built Jet Aircraft

MajorAccidentRates(permillionsectors)

1.7 -1.6 -1.5 -1.4 -1.3 -1.2 -1.1 -1 -

0.9 -0.8 -0.7 -0.6 -0.5 -0.4 -0.3 -0.2 -0.1 -0 -

World

2001 2002 2003 2004 2005 2006 2007 2008 2009

North America Europe Asia Pacific AAPA IATA

Dated: 3 years moving average

Page 23: AAPA Annual Report 2009

annual report 2009 19

These programmes have

developed safety enhancements,

intervention strategies and action

plans to eliminate possible

precursors and contributing

factors to potential events.

The global implementation of

Enhanced Ground Proximity

Warning Systems (EGPWS) has

all but eliminated accidents

characterised as Controlled Flight

Into Terrain (CFIT). Similarly, the

widespread deployment of Traffic

Collision Avoidance Systems

(TCAS) has radically reduced the

risk of mid-air collisions.

Other regulatory and industry

efforts to enhance safety are

ongoing and include Global

Aviation Safety Roadmap (GASR),

Safety Management Systems

(SMS) implementation, Flight

Operational Quality Assurance

(FOQA), Line Operations Safety

Audit (LOSA), Runway Safety

Initiative and Crew Resource

Management (CRM) training.

SMS is a systematic approach

to managing safety, including

the necessary organisational

structures, management

accountabilities, policies and

procedures. From 2009 onwards,

it is an ICAO requirement that all

agencies involved in aviation,

including airlines, airports, air

navigation service providers,

regulators, and maintenance

service providers must implement

SMS. A key aspect of managing

risk throughout the organisation is

to develop a strong safety culture

that encourages the reporting of

hazards, errors, incidents and

accidents without fear of punitive

action. SMS practices also need

to drive performance and

management decision making.

AAPA with its partners is

evaluating “leading edge” safety

performance metrics.

The Flight Safety Foundation

runway safety initiative, completed

in 2009, developed a toolkit and

countermeasures to reduce

incidents involving runway

excursions and overruns. The

AAPA was one of about 20

organisations from around the

world that provided their support to

this initiative. ICAO, FAA and EASA

are alsoworking on comprehensive

runway safety programmes.

Good safety data helps the

industry to identify emerging

safety issues and monitor safety

performance trends. To date,

much of the information has

been collected by different

organisations, including ICAO,

Page 24: AAPA Annual Report 2009

Association of Asia Pacific Airlines20

“AAPA carriers are committed to maintainingand further enhancing the aviation industry’senviable safety record.”

support efforts to strengthen

regulatory oversight across the

region, in full compliance with

international standards as laid

down by the International Civil

Aviation Organisation (ICAO),

working in conjunction with

national regulatory authorities and

other safety stakeholders. AAPA

carriers are committed to

maintaining and further

enhancing the aviation industry’s

enviable safety record, for the

benefit of the travelling public and

the continued successful

development of the industry.

territory, including regular ramp

inspections. Examples of such

programmes include the FAA

International Aviation Safety

Assessment program (IASA) and

the European Commission Safety

Assessment of Foreign Aircraft

programme (SAFA). Failure to be

in compliance with such

programmes could lead to

sanctions against individual air

carriers.

Given the projected growth in air

transport in the Asia Pacific

region, AAPA will continue to

IATA, FAA, EASA and other

national regulators. However,

efforts are underway to share and

eventually integrate access to

these separate databases

through the development of

shared portals and harmonised

data standards.

As already noted, the

enhancement of aviation safety is

a long term and continuously

evolving effort by all safety

stakeholders. The International

Civil Aviation Organisation (ICAO),

Federal Aviation Administration

(FAA), European Aviation Safety

Agency (EASA), Flight Safety

Foundation (FSF), and other

safety agencies and stakeholders

as noted have established

comprehensive safety programmes

and initiatives. Another key

component is effective safety

oversight including performance

audits.

Under the ICAO Universal Safety

Oversight Audit Programme

(USOAP), regular audits are

conducted of national safety

oversight systems, assessing their

level of compliance with ICAO

Standards and Recommended

Practices (SARPs).

The primary responsibility for

oversight of individual air carriers

lies with the State which issued

the Air Operator Certificate (AOC).

However, ICAO Annex 6 has

been amended to strengthen the

national oversight of all foreign air

carriers operating in their

Page 25: AAPA Annual Report 2009

“Environmental policies being shaped now bygovernments will have a major long term impacton the aviation industry as a growing, andcarbon-intensive sector. “

environment

A well developed air transport

system is an integral feature

underpinning the modern global

economy, providing safe, secure,

efficient and affordable access to

regional and global markets.

Travel and tourism are key

contributors to the successful

social and economic development

of both rich and poor nations.

The Asia Pacific region is home to

two-thirds of the world’s

population and includes diverse

economies representing both

developed and developing

countries. Within Asia Pacific, the

air transport sector supports

more than 3 million jobs and

contributes USD 170 billion to

GDP. Over the next two decades,

growth in the air transport and

tourism sectors are projected

to support almost 20 million

jobs, contributing more than USD

1 trillion to GDP.

Ensuring that such growth

is sustainable raises both

economic, as well as

environmental issues. Tackling

climate change features

prominently on the international

political agenda. Environmental

policies being shaped now by

governments will have a major

long term impact on the

aviation industry as a growing,

and carbon-intensive sector.

AAPA has been actively involved

in addressing this important

debate, engaging actively with

governments and other key

stakeholders.

Fueled by the growing demand

for aviation services, the industry

is a major target of environmental

groups, despite the fact that

the industry has a carbon

footprint representing 2% of

global CO2 emissions, supported

by a record of continuous

improvements in environmental

performance through investments

in quieter and cleaner technology.

However, the expected 5% p.a.

compound growth in demand for

air travel in the coming decades

will more than offset projected

efficiency gains, so absolute

emissions from aviation are

expected to double by 2030.

Inevitably, this brings the industry

into conflict with the overall goals

of significantly reducing total

greenhouse gas emissions.

Responding to this challenge, the

industry has established and

committed to targets to deliver

an ongoing 1.5% annual

improvement in CO2 emissions

efficiency each year to 2020;

carbon neutral growth from 2020;

and a halving of net emissions

by 2050 compared to 2005

levels. These are challenging

and ambitious targets, but

certainly achievable using the

industry’s established four

pillar strategy, combining

annual report 2009 21

Page 26: AAPA Annual Report 2009

technology, infrastructure,

operational improvements and

economic measures.

The major contributor towards

meeting the fuel efficiency goal

will be the continued investment

in fleet renewal, taking

advantage of new more fuel

efficient airframes and engine

technologies. AAPA members are

leading the way as launch

customers for new generation

aircraft that offer significant

improvements in environmental

performance, including the Airbus

A380, Boeing 787, and Airbus

A350.

Since fuel accounts for 30% of

total airline costs, airlines have

always been focused on striving

for operational efficiency gains to

minimise fuel usage.

The industry is also actively

exploring the potential use of

alternative fuels, including

sustainable biofuels. A number of

airlines, including Air New

Zealand and Japan Air Lines have

been involved in carrying out

initial flight trials to test the

feasibility of using such new fuels,

working with manufacturers

and innovative fuel suppliers.

These tests have successfully

demonstrated that the new fuels,

derived from a variety of biomass

feedstocks, and blended with

conventional jet fuel, can meet

the necessary operational and

performance standards. The

formal development of new fuel

specifications is underway, with

the aim of achieving the

necessary certification within the

next two years.

Biofuels offer the potential of a

60-80% reduction in life-cycle

CO2 emissions, as a result of the

CO2 absorbed during the

cultivation of the plant or

algae feedstocks. However, the

economics of biofuels are

complex, and there are a number

of challenges to be overcome

before biofuels can reach

commercial viability. Experience

with other green energy initiatives

points towards the need for

governments to support further

research and development, and

carefully consider the fiscal and

regulatory frameworks to

incentivise the adoption of low

carbon fuels.

In the United States, the Civil

Aviation Alternative Fuels Initiative

(CAAFI), a joint initiative that

brings together government,

industry and academic

stakeholders, has taken the lead

in this area. Elsewhere, the

Sustainable Aviation Fuel Users

Group (SAFUG) is working to

accelerate the development and

commercialisation of sustainable

aviation fuels. Asian carriers play

a leading role in this activity.

Another key area of opportunity

lies in improving the efficiency of

aviation infrastructure, notably Air

Traffic Management (ATM).

Representing the world’s air

navigation service providers,

CANSO has estimated that the

ATM system currently operates at

92% efficiency, with the prospect

of being able to achieve an

additional 4% improvement in fuel

and emissions efficiency through

the widespread adoption of the

latest generation of navigation

technologies and concerted action

to streamline the associated traffic

management processes. However,

they caution that this will require

very significant investments and

considerable effort over the

coming decades. They also note

that ATM has to operate within

constraints beyond its control,

including conflicts with military

controlled airspace, unpredictable

weather patterns, and over-riding

safety requirements.

The United States and Europe are

each developing their future air

traffic modernisation programmes

based on the Next Generation Air

Transportation System (NextGen)

and the Single European Sky ATM

Research (SESAR) respectively.

These are expected to provide

notable operational efficiencies,

cost savings and emissions

reductions. Efforts to harmonise

these programmes and ensure

global inter-operability are also

underway.

Association of Asia Pacific Airlines22

Page 27: AAPA Annual Report 2009

In the Asia Pacific region, a similar

coordinated effort is required in

order to more effectively respond

to future growth. One example of

effective regional collaboration

already taking place is the Asia

and South Pacific Initiative to

Reduce Emissions (ASPIRE).

Established jointly by air

navigation service providers from

the US, Australia, and New

Zealand, more recently joined by

Japan and Singapore, ASPIRE

has conducted demonstration

flights to showcase best

practices to maximise

operational efficiencies and

emission reductions within the

Pacific region.

The above measures will

contribute towards meeting

the industry’s commitment

of delivering continuous

improvements in fuel efficiency.

Achieving the industry’s goals of

carbon neutral growth from

2020, and a 50% reduction in

net emissions by 2050

compared to 2005 levels, will

require additional steps, most

importantly, the use of economic

measures in the form of carbon

taxes or emissions trading. The

aviation industry is willing to

make a fair contribution in

proportion to its global CO2

emissions towards climate

change mitigation and

adaptation. The benefits of

economic measures, ideally as

part of a global scheme, would

come from funds being

channelled to other sectors

where there are much greater

opportunities to cost effectively

improve energy efficiencies, and

realistic possibilities of switching

to less carbon intensive

technologies. In this way, the

benefits of allowing aviation to

grow would more than offset the

full cost of the environmental

impact, whilst contributing

significantly to the effort to

reduce overall global emissions.

The unwelcome alternative to

globally harmonised economic

measures is a patchwork of

uncoordinated schemes and

arbitrary levies targeting aviation

that would not achieve the desired

environmental objectives in a cost

effective manner. There are

already plans to introduce national

emissions trading schemes in the

EU, Australia, New Zealand, USA,

and Japan amongst others. The

problem with such national

initiatives is that they have

international consequences, with

the risk of overlapping and

excessive levels of charges. At the

same time, there is no assurance

that funds raised in this way, or

through arbitrary taxes such as

the UK Air Passenger Duty, will be

used to address genuine

environmental objectives. Airlines

are quite prepared for policies that

put a price on carbon, but only

ask that they receive proper

credit, are only charged once, and

at the same rate as other industry

sectors.

Meanwhile, the broader political

debate on climate change, being

conducted through the UNFCCC,

is currently deadlocked on

issues dividing developed and

developing countries. Hopefully,

these issues will soon be

resolved.

Despite the difficulties, the

aviation industry takes its

environmental responsibilities

seriously, and is committed to

working together with

governments, through ICAO,

to address these important

environmental challenges.

“The aviation industry takes its environmentalresponsibilities seriously, and is committed toworking together with governments, throughICAO, to address these important environmentalchallenges.”

annual report 2009 23

Page 28: AAPA Annual Report 2009

Association of Asia Pacific Airlines24

innovation

Air travel plays an important role

in our daily lives, bringing global

mobility, together with

reassuringly high levels of safety

and reliability. In an intensely

competitive marketplace, airlines

are constantly seeking ways to

provide even better service to

customers, through product

innovation and adapting quickly

to meet the changing demands of

travellers worldwide.

As Asian populations grow more

affluent and have a greater

propensity to travel, the overall

growth in the Asia Pacific market

has meant more commercial

opportunities for the airline

industry. The multiplicity of

business models and products

offered by carriers today is to be

welcomed, as this represents

more choices for consumers.

Particularly on longer routes,

passengers are willing to place

greater value on higher levels of

comfort, space and service.

Accordingly, leading airlines have

developed a variety of products,

ranging from extra legroom in

premium economy cabins, to flat

beds in business class, and even

more luxurious first class cabins.

Although the premium cabins are

mainly targeting business

travellers, a significant proportion

of those seats are used by leisure

travellers who similarly see the

value as justifying the extra cost.

Overall, in an international

context, customer demand and

competition has resulted in higher

standards of comfort and service.

However, the current economic

downturn has inevitably led to

weaker demand for business

travel, leading some to question

the validity of the full service

business model and premium

cabins in particular.

Similar concerns were expressed

during past recessions, but

invariably demand for premium

products recovered strongly once

economic conditions improved.

Whilst there may be a temporary

mismatch between the products

Page 29: AAPA Annual Report 2009

“The airline industry is characterised byintense competition, marked by productdifferentiation and service innovation, aswell as highly dynamic pricing strategies.”

annual report 2009 25

on offer and what the market

demands, cabin reconfigurations

are a time consuming and costly

exercise. Consequently, airlines

have had to respond to current

challenges by more aggressively

marketing their premium products

using a variety of pricing

initiatives and other promotional

campaigns to win back value-

conscious customers.

In short haul markets, customers

obviously place more emphasis

on schedule frequency, and

reliability, although there is still a

business market segment willing

to pay a modest premium for a

higher level of comfort and

service. Some new entrants have

even begun offering customer

loyalty programmes and lounge

access. On the other hand, some

full service carriers have begun

experimenting with so-called

menu pricing, offering customers

a choice of separately priced

service options, such as seat

selection, or for checking extra

bags. Unbundling services in

this way should lead to

closer matching of customer

needs, although the process can

be taken too far. Experience

from other industries reminds

us that a la carte pricing and

inclusive packages of services

can happily co-exist.

The successful entry of new

budget carriers to key markets

has stimulated further

competition, and now accounts

for about 14% of the total intra-

Asia Pacific market in seat

capacity terms. Established

carriers have responded by

streamlining their own products,

trimming costs, and competing

more aggressively in discounting

prices to attract discretionary

travellers.

A number of major carriers have

adopted multiple branding

strategies, and established stand-

alone low cost carrier operations

focused on key short haul leisure

markets. The most successful

example of this approach has

been Qantas and its very

successful development of

subsidiary Jetstar.

As further evidence of the

convergence of competing

business models, both Jetstar

and Air Asia X have recently

expanded their networks to

include a number of medium and

longhaul routes, served with

widebody aircraft. Whilst focusing

Page 30: AAPA Annual Report 2009

on leisure traffic, it is worth noting

that such services offer two

classes of seating, to appeal to

those customers willing to pay

extra for added comfort. The

front end premium or “economy

plus” fares bundle in inflight

entertainment offerings and more

elaborate meals, for which

passengers would have had to

pay an additional charge on their

single class, short haul flights.

Furthermore, the use of widebody

aircraft adds another dimension

to the business model, namely

the need to generate significant

additional revenues from the air

cargo business.

Inflight entertainment systems

have been another fertile area for

competitive product innovation.

Passengers are offered an

increasingly wide range of

movies, music, games and other

services, delivered through inseat

displays. Screen sizes have been

getting larger, and are now fully

integrated into the seat design.

Other features include inseat

power supply for passengers to

use laptops or other equipment.

The provision of USB sockets

also allows users to access their

own media content or personal

information. A number of

suppliers are also rolling out

inflight connectivity options,

allowing customers to make

phone calls, access emails or

even surf the net. Whilst these

technologies are now entering

service, the variety of proprietary

standards being used may hold

back widespread adoption. In

addition, there are still differing

views on how such services

should be paid for, with airlines

trying out a variety of charging

schemes.

Other areas where digital

connectivity solutions are having

an increasing impact is in

streamlining passenger processes.

Association of Asia Pacific Airlines26

Page 31: AAPA Annual Report 2009

The use of self-service kiosks at

airports is spreading rapidly to

international travel, having initially

been deployed in major domestic

markets. The opportunity to make

changes to reservations, and

check-in online, from home or

office, are other new features

which have been enthusiastically

adopted by regular travellers.

Similarly, the use of mobile phone

messaging to confirm flight

information and provide timely

updates on gate changes,

weather conditions or other flight

disruptions helps keep customers

fully informed.

Even governments are finally

embracing the use of new

technologies, including biometric

recognition such as fingerprint

reading or iris scanning, in order

to simplify and streamline the

process of conducting necessary

border and security checks.

Passengers look forward to the

day when some of the many

government forms which

currently have to be completed

can eventually be eliminated. The

airline industry has already set a

good example with the

successful implementation of

electronic ticketing worldwide

and the effective elimination of

paper tickets.

The airline industry is

characterised by intense

competition, marked by product

differentiation and service

innovation, as well as highly

dynamic pricing strategies. In

order to retain customers and to

attract new passengers, airlines

will continue to invest in

innovative products to enhance a

passenger’s flying experience.

With the Asia Pacific region

poised to lead in terms of traffic

growth in the coming decades,

the region’s carriers are expected

to maintain their lead in

delivering both customer service

excellence, and value for money,

through a process of continuous

innovation.

“The region’s carriers are expected tomaintain their lead in delivering both

customer service excellence, and valuefor money, through a process of

continuous innovation.”

annual report 2009 27

Page 32: AAPA Annual Report 2009

Association of Asia Pacific Airlines28

outlook 2010

Thankfully, we seem to haveweathered the worst of the storm;the global economy is beginningto show some signs of recoveryfollowing widespread declines inoutput of both goods andservices. The rebound hasbeen led by the Asia Pacificregion, where both individualsand governments are lessencumbered by the excessivelevels of debt which continue toweigh heavily on both businessand consumer sentiment in NorthAmerica and Europe.

The IMF anticipates global GDPgrowing by 3% in 2010. This figurereflects expectations of a modestrecovery in the major developedmarkets, but strong growth inChina and India could see theAsian region achieving 7% growthin the coming year. Whilst positive,there is still the question of whetherthis resurgence will be self-sustaining. Western consumers,facing still rising unemployment,are cutting back and taking stepsto reduce debts, whereas indeveloping and emergingeconomies, the challenge is how todiversify beyond over-reliance onexports to a more balancedscenario including faster growth indomestic consumption.

In recent months, airlines haveseen load factors recover, but lowyields mean continuing losses forthe industry. Rising oil prices arecertainly not helping. Even whenwe do see a further pickup indemand, it will require carefulmanagement of capacity, costsand pricing to nurse batteredbalance sheets back to full health.We must also never lose sight ofthe need to drive furtherimprovements in efficiency andcost-effectiveness throughout thevalue chain.

If there is a part of the industrythat appears to have beenunaffected by the recession, it isthe fact that the regulatoryagenda has remained as busy asever. Fresh challenges includeonerous security procedures forboth passengers and cargo thatoften seem to be driven moreby fear than cold reason;inconsistencies in the multipleways in which passengerinformation has to be provided togovernment authorities; and theimposition of further layers ofgovernment fees, taxes andcharges.

Even more fundamental, is theneed for further structural reform,including a fresh look atrestrictions on national ownershipand control which hold backconsolidation and hinder accessto international capital markets.

With the expected resumption ofgrowth, environmental challengesremain high on the politicalagenda. The aviation industry isunited in its commitment toambitious environmental targets,but is being held back by thefailure of governments to resolvemajor differences between theviews of developed anddeveloping states. AAPA willcontinue to press for a globalsectoral approach to aviationemissions, working through ICAO.

To end on a distinctly positivenote, global air travel demand isexpected to double over the nextfifteen years, led by faster growthin the Asia Pacific region, which isset to become the world’s largestaviation market. AAPA and itsmember airlines will be at theforefront of these developments,playing an important role inshaping the future of the industrywhilst serving the widercommunity.

“ Global air travel demand is expected to doubleover the next fifteen years, led by faster growthin the Asia Pacific region.”

Page 33: AAPA Annual Report 2009

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