Jetrader - July/August 2012 - 11

Asia:
By Peter Negline, BOC Aviation “An enormous quantity of the existing orders for Airbus and Boeing won’t be delivered, unless there’s enough manufacturer-ﬁnancing in place,” [Michael] O’Leary said, adding that Lion Air “can’t buy a bag of sweets…” – Bloomberg, 29 March 2012 Michael O’Leary is renowned for his attention-grabbing comments and headlines. Ryanair’s success under O’Leary’s leadership is there for all to see—it’s a remarkably proﬁtable, cash-rich airline. Still, it would be remiss for the industry to allow his comments regarding industry dynamics in the Asian region to perpetuate. What’s the chance that an entity that “can’t buy a bag of sweets,” can simultaneously afford to ﬁnance more than 50 B737-900ERs, not to mention pay deposits and PDPs on more than 300 aircraft? And it’s not as though Lion Air is in a unique, odd-man out position in Asia—there’s also Air Asia, Indigo and a number of smaller players, which in aggregate represent a lot of incremental capacity in their own right. For those outside the region—currently preoccupied with Europe’s economic woes, EU ETS, U.S. domestic politics, MidEast tensions or the like—the growth story in Asia may not be so prominent on their radar. But don’t

The Growth is Structural
Looking ahead at the aviation market in Asia
be confused. Asian travel and tourism faces a period of long-term, structural growth, independent of the global economic cycle. Undoubtedly, risks remain, but as one wag told this author recently, “the growth will happen….all we need is for the governments to stay out of the way.” homogenous market, it has been consistently contracting for some years now. This trend should continue as U.S. airlines consolidate further and airline management (rightly) puts balance sheet strength and cash balances ahead of (unproﬁtable) market share. This divergence in growth trajectories has been profound since 2005. The intraAsian market is now 10 percent larger than the U.S. domestic market. Capacity in the Intra-Asia region is growing an 8 percent clip per annum, which, interestingly, falls behind ASEASN where airline capacity has grown 11 percent per annum compounded over the last seven years. By the way, that’s the region where Lion Air is based! What’s going to drive Asia’s growth in the future? Typically, demand for air travel is driven by underlying economic growth, in the absence of structural drivers to stimulate growth. But there have been many such drivers in Asia over recent years, and there’s a good pipeline of deregulation and liberalization in store. Notable developments have or will include: • ASEAN Open Skies: Vested interests stalled this initiative from 2005 to 2009 to protect domestic carriers. Widespread economic growth throughout ASEAN

It all Began in 2005
The current circumstances in Europe today are reminiscent for many in Asia of 1998—the dark days of the Asian economic crisis. As Asia began to recover from 2000 onward, helped by China’s entry into the WTO, the unfortunate events of Sept. 11 almost put an end to the nascent rebound. From 2002 to 2004, the onset of SARS each spring had a signiﬁcant dampening effect on conﬁdence across the region. By 2005, after seven years of an uneven recovery, albeit helped by weak Asian currencies, which drove surging exports to the west and the emergence of business friendly political leaders in many countries, Asia emerged as a huge growth engine for travel and tourism. Little has been made of the importance that intra-Asia travel now represents for the global travel industry. While the U.S. domestic market remains the world’s largest

Scheduled airline capacity growth by key global regions
(ASKs in Billions) Intra-SE Asia Intra-East Asia Intra-Asia Intra-Europe Intra-US Asia to Rest of World To, from, within Asia Global Mar 2012 15.2 55.4 103.9 64.3 94.7 56.5 160.4 566.9 Mar 2005 7.2 33.8 60.6 47.4 103.3 39.4 100.0 421.9 % Chg Mar 2012 vs. Mar 2005 110% 64% 72% 35% -8% 43% 60% 34% 7yr CAGR 11.2% 7.3% 8.0% 4.4% -1.2% 5.3% 7.0% 4.3% Global market share Mar 2012 Mar 2005 2.7% 1.7% 9.8% 8.0% 18.3% 14.4% 11.3% 11.2% 16.7% 24.5% 10.0% 9.3% 28.3% 23.7% 100.0% 100.0%

East Asia includes China, Japan, Korea, Taiwan, HK and Macau. Asia includes East Asia, South East Asia and the Indian sub-continent. Source: Innovata

Jetrader 11

http://www.naylornetwork.com/ist-nxt

Jetrader - July/August 2012

Table of Contents for the Digital Edition of Jetrader - July/August 2012