News Analysis: Asian airlines' outlook brighter despite dismal earnings last year

When Singapore Changi Airport announced a reduction in charges for airlines last Friday, it was viewed as the latest effort to maintain its competitiveness in the tough airline market even as some analysts believed that most Asian airlines were poised to stage strong recovery due to falling fuel cost and rising demand in the region.

Changi Airport unveiled a series of fee reductions such as passenger service fees for transfer and transit passengers, landing fees for larger aircrafts, and franchise fees for flight catering and ground handling services. Existing rebates on landing fees for long-haul flights, aircraft parking and aerobridge charges will also be extended.

Changi Airport's decision to reduce charges may be partly due to the growing importance of low-cost carriers, which have intensified competition in the whole airline sector of the region.

The fierce competition among airlines and high jet fuel cost had in the past years dragged down the financial performance of most airlines in Asia.

According to J.P. Morgan Research, half of the airlines in the region have registered losses or making low profit levels for the financial year 2014. Japan Airlines, AirAsia and Cebu Air remained the top three most profitable carriers, whereas Tiger Airways, Thai Airways and AirAsia X were the least profitable among the regional players.

But there were signs showing that the airline industry in the region is poised to recover strongly in the next few quarters. The recent decline in jet fuel prices has created a more benign operating environment for airlines. Some carriers are already gearing up for the industry recovery through capacity expansion and opening new routes.

Indonesian national carrier Garuda, for instance, has ordered new Airbus jets and is mulling over the idea of using Singapore as a stopover for its flights to other destinations such as European cities. The airline's Jakarta-Singapore passenger traffic increased by about a fifth year on year, and more growth is expected.

Garuda's expansion plan came in the backdrop of likely open skies in the Association of Southeast Asian Nations (ASEAN) by the end of this year, when all 10 member nations aim to remove all restrictions on flights to and from their cities so that airlines from member states can fly and compete freely within the region.

Indeed, the potentials of strong growth for Asian airlines lie not only in Southeast Asia, but also in other parts of Asia. UBS Global Research said the recovery in domestic business travel and a continued increase in leisure outbound traffic brighten the prospect of Chinese airlines.

UBS said "although domestic business travel demand has been weak over the past 18 months amid tightened government budgets, traffic is starting show signs of a recovery and we think this could be a near-term positive catalyst for demand."

As Chinese carriers look forward to a double-digit capacity increases on their international routes this year, outbound leisure travel will likely be their biggest growth driver. Despite consecutive years of double-digit growth, the outbound travel market within China remains under-penetrated.

According to UBS, China's average outbound trips per capita averaged at 0.05 per year in 2014, compared with an average of 0.8 trips per capita across other major Asian countries, suggesting that there is still significant growth potential within China's outbound travel market.

And there is another part of Asia where strong growth is expected for some time to come. India has witnessed a strong rebound in air traffic growth, and its airline industry's utilization is now at record highs.

For the first quarter this year, Indian carriers flew 21 percent more passengers compared to the same period last year. HSBC Global Research believed the growth in India is sustainable, as the demand outlook remains bright amid strong economic growth expectations and the rising propensity of Indians to travel abroad. Endi