Airlines look to China as recession puts industry in a tailspin

ASIA BRIEFING:THE FIRST TIME I flew in mainland China was 20 years ago and the sign in Kunming Airport said, “We welcome our foreign fiends”.

The flight was delayed because someone had set up a stall on the runway selling food mixers and the whole cabin was full of people carrying these treasured white goods back home, along with various foodstuffs. There was one more person booked on the plane than there were seats, so two of the stewardesses had to double up.

How times have changed. Last week the International Air Transport Association (Iata) held its 68th annual general meeting and World Air Transport Summit. This year the meeting was in Beijing, capital of the rising star of the aviation firmament.

Air travel is booming in China. The country’s domestic aviation passenger market is the second largest in the world, while its international passenger market and international cargo market rank seventh and fourth respectively in the world. China’s airlines accounted for half of all global profits last year.

There are scores of airports being built around the country, none of which is likely to welcome “foreign fiends” but which will put the aviation infrastructure in many Western countries in the shade.

The boom in aviation offers opportunities for Irish companies too – Aer Rianta International will open its first Chinese outlets this year at the new Kunming Changshui International Airport in the southwest of the country.

Airport construction is part of the “mini-stimulus plan” the government has introduced, discreetly, to counteract slowing growth in China.

The expansion of the aviation industry in the past decade has been remarkable. Some 1.2 billion more people and 16 million more tons of cargo will fly this year than in 2001.

The meeting of the International Air Transport Association takes place at a troubled time for the industry, which is under pressure from high fuel prices and the impact of the global recession. The aviation industry faces a fuel bill this year of €164 billion, which is almost equal to the GDP of the Philippines or the Czech Republic.

“The biggest and most immediate risk, however, is the crisis in the euro zone. If it evolves into a banking crisis we could face a continent-wide recession, dragging the rest of the world and our profits down,” said Tony Tyler, the association’s director general and chief executive.

“The industry’s profitability is balancing on a knife edge. If the bottom line worsens by even the equivalent of just 1 per cent of revenue, our $3 billion [€2.38 billion] profit very quickly becomes a $3 billion loss.”

Asia-Pacific carriers make up 40 per cent of the world’s air cargo business and look set to make the biggest contribution to profits in the industry, at about €1.6 billion, but the outlook has been downgraded because of the slowing economies in China and India. It is also less than half of the profit the region reported last year.