Travel Daily talks to the Andrew Herdman Director General of the Association of Pacific Airlines about the different aspects of the association’s work and what is truly involved in being the body representing the region’s airlines.
Q) What is your outlook for the region’s airlines?
I think we’ll see Asia continue to grow, although there are some uncertainties. The US seems to be steadily recovering. Even Europe’s headline problems seem to have eased off. The question now is the pace of growth. Offered a world where global growth is 3% or above – we’ll take it. People continue to travel by air, for the convenience, even when they are financially squeezed.
Q) Does that favour the LCCs?
The low fare, no frills business model is well tailored to serve many short haul markets, whether that’s seats on an LCC or low fares on a competing full service carrier. There is certainly a shift to that approach in those markets and that’s a global trend. But at the same time, airlines serving long haul markets are still competing vigorously on comfort and service, and investing in new products and service innovations.
Q) What factors impact passenger yield?
Oil prices are a big factor, with oil at US$100 a barrel that accounts for some 35% of our total costs. On the revenue side, with so many competing airlines, this is a tough business with thin margins, even in a good year. Airlines did well in 2010, but profits were squeezed in 2011 and 2012 when they halved and halved again, even as the overall market grew in size.
Q) Are there any solutions?
The American carriers, increasingly run by cost-conscious CEOs, have seen improved financial performance as a result of very tight capacity management and reluctance to fly empty seats, with 80%+ load factors they are making money. Other airlines are facing similar pressures to improve asset utilisation and tightly control costs in order to remain profitable.
Q) AAPA is having its Assembly of Presidents in Hong Kong later in the year what will be the hot issues there?
In terms of key industry regulatory issues, we’ll be focusing on safety, security, environment and consumer rights.
Q) What issues surround consumer right at the minute?
There are some difficult issues involved when it comes to deciding what service elements should be included in the price of a ticket, what value should be placed on flexibility and what should happen when things go wrong. Some governments seem to lack faith in competitive markets, choosing instead to legislate detailed rules regarding service levels, as well as penalties and compensation when failures occur, even for circumstances beyond the control of airlines. We are concerned that such national regimes have resulted in many contradictions and inconsistencies in their application. As airlines, we are urging governments to adopt some common principles, whilst allowing consumers freedom to choose amongst competing service offerings.
Q) And safety and security?
The industry has a fantastic safety record and is becoming even safer. The industry is also highly secure, but we do need to rethink some of the processes involved, especially with eight million people a day travelling by air.
Q) To what extent is capacity in the air and on the ground becoming an issue?
Air traffic doubles globally every 15 years, and in Asia will double every twelve years or so. That really concentrates the mind in terms of the additional infrastructure needed, including airline fleets, pilots and other skilled personnel, runways and airport terminal capacity.
Q) Where specifically is it a concern?
Rapid growth in demand for air travel has led to bottlenecks. A case in point is China, which is now the world’s second biggest aviation market after the US. The air traffic management system hasn’t kept pace with the growth in demand, leading to congestion and chronic flight delays. In other rapidly growing markets like Indonesia and the Philippines, the challenge is ensuring that timely investments are being made in airports, runways and terminal capacity.