Northstar

FEATURE www.travelweeklyweb.com to that, it serves the purpose of storing, transporting and syncing the iPads particularly on days where the aircraft serves multiple flights. Forming a fort When it comes to competition in the business, airlines have it tougher due to the direct impact of that the industry gets. With the emergence of low cost options, the higher fuel costs, the aftermath of the global economic crisis, among many others, carriers are looking into forming a fort to expand their network and emerge a winner given a tough environment that they may be in. Diversifying through forming partnerships is part of a strategic direction that airlines take, for several reasons. It may be for better route coverage, stronger branding and for some, to save them from the risk of going under. Joining a global alliance can be seen as a fool proof way to get ahead of the competition, by being bigger and better in the way the airlines operate. Malaysia Airlines and Qatar Airways for example, have joined the oneworld alliance which was formed originally by American Airlines and British Airways. Air Berlin, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, Qantas, Royal Jordanian and Russia's S7 are also part of the 12-member alliance. Qatar Airways and Sri Lankan airlines are on track to join oneworld, with full membership expected within the next year or two. "For Malaysia Airlines, joining the alliance would strengthen its competitiveness, enabling it to offer customers an unrivalled alliance global network served by the highest quality partners from each of the world's key regions," Malaysia Airlines Group chief executive officer Ahmad Jauhari Yahya said in a statement Etihad Airways, which saw its revenue increase by 200 per cent in 2012, attributes its codeshare agreement as one of the two key factors that has helped in clocking in some US$600 million in revenue. According to the International Association of Transport Association (IATA), economic benefits are generated by the alliances and joint ventures. Alliances began as simple code share arrangements, which were little more than enhanced marketing agreements allowing an airline to sell a seat on flight operated by its codeshare partner. www.travelweeklyweb.com Etihad's CEO James Hogan and Kenya Airways' CEO and MD Titus Naikuni, agree on their codesharing decision With airlines putting their heads together to extend their network, will the fort be a good cushion to the impact of global incidences on the air transport industry? An uphill return With strategies abundant and plans laid out by many airlines to face the year with much gusto, IATA estimates return on capital for airlines globally, to be on the average of 3 per cent for this year. Comparatively, investors may expect to earn a return of seven to eight per cent in an industry with a similar risk profile to airlines. IATA highlighted that: "The fact that the airline industry persistently earns less than its cost of capital is a measure of the intensely competitive environment. Consolidation in the US and Europe, including joint ventures on many long-haul markets, is starting to make a difference. There is still a long way to go before 'normal' profits are earned". When it comes to forecast, the initial question we all ask is: Will things look up this year? Practical deduction will indicate that if an airline is banking on the region's dynamic growth as a source indicator of its profit progress, the result is highly dependent on the group's performance vis-à-vis the economic impact that will be wholly experienced by the group. And the outlook for a big carrier with strong partnerships differs from a small one left on the shelf. IATA, in its latest forecast, has lifted its expectations for collective industry profits in 2013 to $8.4 billion. The vast majority of this will come from North American and Asian carriers. For others, and European carriers in particular, there is little immediate reason to be cheerful on profits. "It is still a quite a difficult economic environment, but it's one where the downward pressures are starting to ease," said IATA chief economist Brian Pearce, presenting the forecast in Geneva. "I think we are past the low point. We are expecting modest improvements in profitability. "We see slightly better world trade growth and a slight decline in oil prices. We expect to see a further expansion of passenger travel. We expect it to break the 3 billion passenger mark in 2013. Because we see the US economy starting to pick up a bit, we expect to see some moderate improvement in cargo volumes." Also helping the outlook is that things in 2012 appear not to have been as bad as might have been feared, especially given that oil prices remain high and economic growth weak. IATA now expects collective profits for this year to reach $6.7 billion in 2012, although this remains below the $8.8 billion recorded in 2011. Although IATA sees growth moderating in 2013, it still expects global passengers numbers to reach 3.1 billion. More pax for APAC? Asia-Pacific remains the most profitable region for airlines and is forecasted by IATA for a small increase in profit in 2013 to $3.2 billion. But the honour of being the most profitable region is likely to be passed to the North American carriers in 2013 as stagnating cargo weighs heavy on many of its airlines. "We've been through the recession. We've had the big rebound and Asian airlines had a good year in 2012. We have continued to do better than other others, but we are not immune," says Andrew Herdman, director general of the Association of Asia Pacific Airlines. "A year ago there was a lack of visibility and there was anxiety. But passenger numbers have increased seven per cent in 2012," he said. Perhaps there is still room for airlines to perform in Asia, given how it is moving away from the doldrums of yesteryears. While Herdman believes in the increase, he noted that the year has seen the drop in the strength of demand and slower growth of passenger number (less than three per cent) in October. MARCH 2013 | TRAVELWEEKLY ASIA ■ | 5

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