The fastest way to become a millionaire is to be a billionaire and start an airline.
This old joke is not far from the truth when it comes to Asia's airline sector. Globally, airlines will experience a 10th consecutive year of profitability in 2019, according to the International Air Transport Association, their longest such run in history. Yet in south-east Asia, only six of 20 publicly traded airlines made a profit in the last reported quarter, according to a study by the Sydney-based CAPA Centre for Aviation. And there are problems throughout the region, from the bankruptcy of Kingfisher Airlines in India to the recent struggles and losses at Hong Kong's Cathay Pacific.
This is puzzling, since demand is soaring as a growing Asian middle class takes to the skies. IATA forecasts that the Asia-Pacific region will see an additional 2.35 billion passengers by 2037, for a total of 3.9 billion. At that point, Asia will account for two fifths of all international air travellers. Signs of growth are everywhere. In Vietnam, with more than 50m passengers last year, a travel agency is planning to set up the country's sixth airline. In Nepal, meanwhile, more than 2.45m people people patronised charmingly-named carriers like Buddha Air and Yeti Airlines.
If demand is not the issue, what is? Intense competition, for a start, with a proliferation of low-cost carriers (LCCs) over the past decade, starting with AirAsia but now including Indonesia's Lion Air, Vietnam's VietJet and Australia's JetStar. Their battle with established carriers forced the entire industry to take advantage of the low oil prices of the past several years to lower fares - which established a price-conscious mindset among their customers. Now that fuel costs are rising again, they are finding it impossible to raise ticket prices, putting pressure on profitability.
Excess supply is another problem. Asian airlines will take delivery of some 800 aircraft in 2019, according to CAPA, twice as many as their US counterparts - and with newer fleets, the new jets are for expansion not replacement. There are currently some 2,050 aircraft in service in south-east Asia and another 1,700 or so on order - representing a near doubling of capacity.
Not surprisingly, therefore, the resulting economics are an order of magnitude worse than in other regions in the world. Trade body IATA expects US airlines to make a profit per passenger of almost $17 in 2019 and to break even with a load factor of only 57%. By contrast, Asia-Pacific airlines are set for a profit of only $6 or so (with results varying widely from market to market) and need a load factor of 68% to break even.
What else might help? In the US and, more recently in Europe, both bankruptcy and consolidation have helped to bring supply and demand more into balance. While some smaller airlines may be allowed to go to the wall, it is highly unlikely that any country would allow its national flag carrier to fail. And the same political obstacles, plus a stricter regulatory regime, augur against many mergers. Having said that, there have been a few small moves in that direction recently, with Japan's ANA purchasing 9.5% of Philippine Airlines (following its 2016 acquisition of a 8.8% stake in Vietnam Airlines); and last month, Garuda said it was considering buying a majority share of Sriwijaya Air, which controls a large chunk of the domestic Indonesian market.
Meanwhile, of course, what is bad news for the airlines is good news for us passengers!