Asian airlines push ahead with expansion

Press, 12 May 1987, Page 20

Asian airlines push ahead with expansion

Most Asian airlines, in keeping with the region’s reputation for economic dynamism, are pushing ahead with plans for expansion while battling to keep their share of a competitive market, writes Tim Pearce, of Reuters, in Hong Kong.

A Reuter survey of regional airlines showed that the majority are negotiating to expand their international networks and are buying costly new aircraft to do so.

While some carriers, such as Singapore Airlines (SIA) and Hong Kongbased Cathay Pacific Airways rely on a reputation for safety and efficiency to make up for small domestic populations, others have an image problem.

The standard of service on China’s national airline, the Civil Aviation Administration of China (CAAC), is notorious. Complaints of rudeness, unreliable bookings and delayed flights prompted one passenger to suggest jokingly that the airline motto should be “We never forget you. have no choice.”

Two other major flag carriers, Japan Air Lines (JAL) and Air India, are still recovering from aircraft crashes in 1985 which analysts say scared off . passengers and reduced revenue.

About two-thirds of the region’s flag carriers are fully State-owned, while others are publicly quoted companies in which the Government holds a majority stake. Only Japan and Hong Kong have more than one international carrier. In the absence of the deregulation that has sharpened competition, cut air fares and led to a spate of takeovers in the United States airline industry in recent years, Asian carriers are able to expand in a less cut-throat environment.

Expansion plans abound. SIA wants to link its east and west-bound routes in a world-wide network. It has sought landing rights in Toronto and Montreal, is negotiating with European airlines to pick up passengers and take them to third countries, and wants to extend its services eastwards to New York and Chicago from the United States west coast.

South Korea is negotiating for publicly listed Korean Airlines (KAL) to fly to Sydney, Rome, London, Vancouver and Chicago. KAL has contracted to buy 11 new aircraft, including four McDonnell Douglas MD-lls and three long-range Boeing 8747400 s. Senior officials of Australia’s Gov-ernment-owned Qantas Airways said the airline will spend about $3 billion (NZ3.75 billion) in the next few years on modernising. its fleet of some 30 Boeings. . i . ' Only last month, Qantas placed orders for four Boeing 747-400 s for delivery in 1989. In north Asia, China’s CAAC plans to add 32 aircraft, 18 of them Boeings, to its fleet of 400 in 1987, and aims to add five new international routes to its current 27.

China has begun to break the airline’s stranglehold on domestic and international traffic and plans to turn CAAC into an overseer of six competing national airlines, with the aim of improving safety, efficiency and profitability. CAAC will also run 17 new regional airlines.

Industry sources say the State will keep tight control on spending and the benefits of competition might be slow to emerge.,; . ... . c

Meanwhile, with demand ; ; far outstripping supply, CAAC has no trouble filling almost every available seat, and last year carried 10 million passengers, a 35 per cent rise from 1985.

For most publicly listed Asian airlines, 1986 was a profitable year, helped by the sharp drop in oil prices, and analysts’ 1987 predictions are positive.

Investment analysts in Kuala Lumpur said the Malaysian airline system, privatised in 1986, posted a net profit of 104.9 million ringgit ($NZ74.4 million) in the year ending March 1986 and should report similar profits for 1986/87. KAL’s net profits shot up to 12.13 billion won (5NZ25.45 million) in 1986 from 4.47 billion ($NZ9.43 million), in 1985, while Cathay Pacific has forecast a strong performance in 1987 after reporting a net profit of 1.23 billion Hong Kong dollars (5NZ280.7 million) in 1986. Air India, on the other hand, expects its net profit to fall to 300 million rupees (SNZ42 million) in the year ending. March 1987 from 660 million rupees (5NZ93.9 million) the previous year.

An airline spokesman said fewer foreign tourists had flown Air India in the past year. He declined to comment when asked whether this might be because of the crash of an Air India Boeing 747 west of Ireland in June 1985 which killed all 329 people aboard.

. JAL saw a 1984/5 net profit of 7.18 billion yen (SNZB7 million) swing to a net loss of 6.74 billion (SNZB2 million) the following year after 520 people died when a Boeing 747 crashed on a domestic flight in August 1985. JAL public relations officer Kaneo Maki said the airline sees a return to profitability in the year to end-March 1987, for which it forecasts a net profit of four billion yen (1NZ48.5 million).

The airline is also involved in a tough cost-cutting drive before the Government’s planned sale of its 34.5 per cent stake on October 1. “We have to cut costs or we will not be able to compete strongly in the international market,” Maki said. Plans include smaller bonuses, salary. cuts for some staff and the transfer of others to JAL subsidiaries, he said.

Apart from its forthcoming privatisation, the airline is also worried about mounting competition from All Nippon Airways (ANA), a local carrier which last year began flying to Los Angeles and Washington and will start flights to Peking this month. ANA’s 60 per cent share of the domestic market, compared with JAL’s 20 per cent, gives All Nippon an advantage in linking domestic with international flights, said Maki. Elsewhere, State-owned Garuda Indonesia Airways has launched a campaign to stamp out corruption and improve efficiency after reporting losses for six straight years. Garuda’s debts, largely incurred through the purchase of 11 new aircraft just as Indonesia was hit by recession, have been reduced to around SUS7OO million (NZI.2 billion) from SUSI.2 billion (SNZ2.I billion) in 1982.