The Asia-Pacific region is so vast and diverse that it often defies definition as an airline industry bloc. However, some broad trends are noticeable in many markets. For example, the low-cost carrier sector is still in the rapid development phase, meaning high growth and increasing pressure for legacy carriers. At the same time, some of the major carriers are struggling with increased competition and falling demand in their home markets.
Below are trends from five different countries or market segments that are likely to have a significant impact in 2014. In some markets the actions of individual airlines are expected to be of greatest interest, while in others common threads emerge.
The main points to watch in Australia in early 2014 will be the actionstakes in its latest campaign to boost its flagging financial performance.
The airline has indicated some significant changes are being considered, including some restructuring. The government's response to the carrier's plight also will be important, with Qantas pushing for regulatory relief that could raise foreign investment caps.
Qantas has predicted that it will post a pre-tax loss of A$300 million for the six months through Dec. 31, partly driven by the increasingly damaging battle within the domestic market.
The carrier's response has been to announce an extensive new cost-cutting campaign and a sweeping review of parts of its business. The most notable cost-reduction measure is the planned elimination of 1,000 jobs in 2014, and the airline has indicated that some network rationalization may occur —potentially creating openings for its competitors.
Other options are also on the table, such as selling major assets. No specifics have been revealed, but this could theoretically include the frequent-flyer program, or some of the carrier's interests in overseas joint ventures. It is difficult to imagine Qantas parting with its Jetstar low-cost subsidiary, as that is very much the jewel in the group's crown.
While it appears unlikely that the government has the appetite to invest in Qantas or provide debt guarantees, lawmakers have been more receptive to the idea of loosening foreign investment restrictions on Qantas. This would potentially open the door for one of its strategic partners to invest in the carrier.
Virgin Australia has already gone down this path in a major way. Its partners, and have all purchased substantial stakes in Virgin Australia. It is not subject to the same ownership restrictions that apply to Qantas, which are a legacy of the government's sale of the carrier in 1992.
The major moves in the Japanese airline industry in 2014 could come from, as the carrier considers a major widebody aircraft order and possibly further foreign investments.
ANA has confirmed that a decision could be made soon on a widebody order, although it has not yet revealed a timetable for such a move. The airline is looking for an eventual replacement for its largefleet, and is considering 's 777X and the .
The carrier operates 55 777s, including -200s, -200ERs, -300s and -300ERs. ANA wants to begin replacing its 777s around 2020, and will focus first on the 25 that are used on international routes.
made a similar decision in October 2013, when it placed a large order for Airbus A350 aircraft to be the long-term replacement for its Boeing 777s.
ANA likely will be seeking more offshore ownership opportunities in 2014. The airline has stated that making strategic investments in Asia is part of its corporate plan, and in June 2013 it established an investment management company in Singapore for that purpose.
In 2013 ANA purchased a 49% stake in Myanmar-based carrier Asian Wings Airways to help expand its international footprint. It also bought the Miami-based Pan Am International Flight Academy, which it intends to use to help accommodate the growing demand for pilots in Asia.
So far, its investments have been relatively modest. It would not be a surprise to see it hunt bigger game this year, and it has reportedly been in talks with some other Asian airlines.
Further development in Japan's new low-cost carrier market will occur in 2014. Japan Airlines has established an LCC joint venture with Jetstar, while ANA has a stake in one joint venture and has recently established a wholly owned LCC as well.
While financial success has been more elusive than expected for these carriers, experience in other markets shows that once the LCC genie is out of the bottle, it is unlikely to go back in.
One of the most important trends in Asia is the continuing push into overseas markets by the region's rapidly growing low-cost carriers.
The major players such as, Lion Air and Jetstar Airways plan to ramp up the fleets and networks of the joint-venture carriers they have established in strategic Asian markets. and Singaporean budget carrier Tigerair will begin operations of Tigerair Taiwan at the end of 2014. Aside from boosting their group-wide networks, such moves will also help provide the capacity expansion needed to accommodate the several hundred narrowbody orders placed by the LCCs.
LCCs are a serious threat to legacy carriers in Southeast Asia, as the low-cost business model is particularly well suited to large population bases with quickly growing or developing economies. For that reason, many of the legacies have moved to set up their own LCCs to counter the threat.
Malaysia-based AirAsia has been one of the most active in establishing offshore joint ventures. It has spread its footprint by helping establish—or buying stakes in—LCCs in Thailand, the Philippines, and Indonesia. It pulled out of another joint venture in Japan in 2013, but indicated it intends to return to this market. Regulatory approval is pending for the newest franchise, AirAsia India.
Lion Air has not been as quick as AirAsia in creating foreign franchises, but it is catching up. It has already reached into AirAsia's home market by installing its Malindo Air joint venture in Kuala Lumpur. In December it established, based in Bangkok. It has started with just a few -900ERs, but Lion has big plans for this market.
Jetstar, a subsidiary of the Qantas group, has offshore joint ventures in Singapore, Japan and Vietnam. It is attempting to set up another in Hong Kong in partnership withand a local investment group, but the regulatory approval process has been complicated by strong opposition from incumbent carriers, including Cathay Pacific.
LCCs in China
Chinese aviation officials are finally encouraging the development of budget airlines, but the question is how fast they want them to evolve, if indeed they can evolve in the face of resistance from the established state network carriers.
In 2014, probably the first signs to look out for will be conversion of private airlines to the budget model. The Civil Aviation Administration of China has officially urged them to do so. One began the process before the edict went out in July. West Air, based in Chongqing, has been chosen by its owner, Hainan Airlines, for exploration of the LCC model. Outside of mainland China, another unit, Hong Kong Express, has also been converted.
Before the end of 2014, Hainan Airlines should have some idea of whether and how it can succeed with budget airlines. If it can, it presumably will shift focus to such subsidiaries as Beijing Capital Airlines and Kunming-based Lucky Air. Tianjin Airlines could not be converted directly into a budget carrier, since it has plans for long-haul operations But the group could conceivably require it to evolve into something like Jetstar, which has long-haul widebody services, including a modest business class.
The issue is not just whether Hainan Airlines and other private airlines can execute budget operations well. The services also will need access to routes, often to the detriment of the main state-controlled carriers.
The state carriers also have been told to look at budget operations, presumably by setting up no-frills subsidiaries. As government-controlled entities, they are under special pressure to act—the national leadership wants further liberalization of the economy. But they are not nimble organizations, and they answer to a majority shareholder, a state-assets commission that looks for profits rather than the industry's evolution.
Demand in China
Chinese airlines found themselves with too much capacity in 2013, and had weak operating results. Business travel was particularly affected. Altogether, it has looked like a simple case of the airlines and their government supervisors suffering from an unexpectedly weak economy, which can happen anywhere.
But something else is going on. Officials, including those working for the country's enormous state companies, are traveling less.
The new administration of President Xi Jinping is trying to crack down on corruption and—virtually the same thing—officials granting lavish perquisites to themselves and each other. An ever-popular perk is the holiday masquerading as an official trip. Anecdotally, much less of this is happening, but of course there are no statistics for corruption, and so it is impossible to tell how much money is staying in government bank accounts instead of going to the airlines (and top-notch hotels, opulent restaurants, and so on).
Whatever the magnitude, the effect of reduced corrupt spending is increased because the industry is used to rapid growth. In effect, the rotten portion of revenue can normally be expected to rise nicely every year, as officials get more money to spend. Indeed, the general impression in China has been that corruption has tended to get worse, so the diversion of public funds to unwarranted travel has probably grown faster than legitimate business in recent years.
Even justifiable or almost-justifiable travel by the state and its enterprises in 2013 likely has been significantly restrained, with offices across the country striving to look as though they are paying attention to the top leadership.
At some point this change in official behavior should stabilize, maybe in 2014, if it has not already done so. It could also reverse. Earlier presidents and their prime ministers have come to power unleashing a crackdown on corruption and misuse of public funds. But after a year or so, the gravy train has been back on the rails.