ASSOCIATION OF ASIA PACIFIC AIRLINES

9/F Kompleks Antarabangsa

Jalan Sultan Ismail
50250 Kuala Lumpur
MALAYSIA

Telephone +603 2145 5600

Facsimile +603 2145 2500
Email info@aapa.org.my

www.aapairlines.org
annual report
2009
 AAPA
MEMBERS

Air New Zealand EVA Air Qantas Airways

All Nippon Airways Garuda Indonesia Royal Brunei Airlines

Asiana Airlines Japan Airlines Singapore Airlines

Cathay Pacific Airways Korean Air Thai Airways International

China Airlines Malaysia Airlines Vietnam Airlines

Dragonair Philippine Airlines

 contents
Executive Introduction Financial Financial Traffic Trends 52nd Assembly
Committee Results Statement of Presidents

02 03 04 06 07 10

AAPA Fleet Regulation Safety Environment Innovation Outlook 2010

2009

12 14 17 21 24 28
executive committee

Chew Choon Seng Robert Yang Tengku Dato’ Azmil Tony Tyler Haruka Nishimatsu
Chief Executive Chief Executive Zahruddin Chief Executive President & Chief
Officer Officer Managing Director Cathay Pacific Executive Officer
Singapore Airlines Royal Brunei Airlines Malaysia Airlines Airways Japan Airlines

2 Association of Asia Pacific Airlines

introduction
This period has been one of the
most difficult and challenging for
airlines in the history of aviation.
Unfolding over the past two years,
the bursting of the credit bubble in
the US housing market triggered
a global financial crisis, which
in turn led to a worldwide
collapse in consumer confidence.
Consequently, the world has
suffered a synchronized global
economic slowdown in 2009, of a
severity not seen since the 1930’s.
As a result, starting in mid-2008,
airlines have experienced a
prolonged and painful period of
weaker demand for both
passenger and cargo services.
With load factors falling, airline
revenues took a double hit from
both declining traffic and lower
yields.
Air cargo dropped precipitously in
the fourth quarter of 2008, and
bottomed out at year end, down
almost 30% in tonnage terms. In
2009, we have seen a slow but
steady recovery in cargo volumes,
regaining some of the lost ground,
but rates remain depressed.
Passenger traffic continued to
deteriorate throughout the first
half of 2009 and has only recently
begun to show some signs of
stabilisation. Demand for premium
passenger services has been
particularly weak, as businesses
cut back on travel costs.
Airlines responded, as they have
to previous downturns, by
progressively reducing capacity
along with efforts to stimulate
demand through highly
competitive fares and discounted
travel packages.
Aircraft utilisation fell, forcing
some retirements of older aircraft,
whilst others were temporarily
parked. Lower aircraft valuations
added to pressures on airlines
and aircraft leasing companies.
Airframe manufacturers went into
the downturn cushioned by multi-
year order backlogs, but have
been forced to negotiate deferrals,
and a small number of order
cancellations, as the industry
seeks to adjust to the loss of at
least two years of expected
growth. This process has not yet
run its course.
At the same time, airlines made
strenuous efforts to cut
costs. Initiatives to trim staff
costs included reductions in
performance bonuses, unpaid
leave schemes and, as a last
resort, staff retrenchments.
Meanwhile, oil prices, despite
falling back from the peak
reached in mid-2008, have
remained exceptionally volatile,
ranging from US$40 to US$80
per barrel so far this year. A
number of airlines suffered
significant losses on fuel hedging
programmes as a result.
Given all these negative factors,
most airlines have been reporting
financial losses, with IATA
estimating that the global airline
industry will lose US$11 billion in
2009. Asia Pacific airlines have
been particularly badly affected,
given their traditional strong
reliance on premium passenger
traffic and the air cargo business,
the two worst affected market
segments. A number of carriers
have taken steps to strengthen
their balance sheets through a
variety of new financing initiatives,
in order to ride out the crisis.
Despite the severity of the
downturn, aviation continues to
play a fundamentally positive role
in the global economy every day,
keeping air travel safe, secure and
affordable, and linking people and
products to markets across the
world.
Once again demonstrating our
customary resilience in the face of
adversity, we look forward to the
hopefully brighter days that lie
ahead.
Andrew Herdman
Director General
“
This period has
been one of the
most difficult
and challenging
“
for airlines in
the history of
aviation.
annual report 2009 3
financial results

The airline industry was hard hit by the severe global

Airline Net Profit by Operator Region
downturn, suffering net losses totaling USD16.8 billion
USD billion
in 2008, in marked contrast to the record net profit of
USD12.9 billion achieved in 2007. 8-
6-
Soaring crude oil prices, sharply lower passenger and 4-
cargo demand and stiff competition all contributed to 2-
the extremely challenging operating environment. 0-
Crude oil prices were exceptionally volatile, and -2 -
averaged USD97 per barrel in 2008. The global -4 -
economic recession undermined both passenger and -6 -
cargo demand, which saw declines of 1.7% in -8 -
passenger numbers and a 6.6% fall in air cargo -10 -
tonnage. -12 -
2004 2005 2006 2007 2008

By region, US carriers were hardest hit, recording US Europe Asia Pacific Source : IATA
losses of USD9.5 billion, more than half the global total.
Asia Pacific airlines reported USD5.5 billion in net
losses. European airlines as a group, on the other hand,
managed to remain profitable, reporting an aggregate Operating Performance of Asia Pacific and AAPA
USD0.2 billion in net earnings. Airlines 2008
USD billion
Losses suffered by the three largest carriers in Mainland
140 - 129.0
China, inclusive of fuel hedging losses, totalled USD4.2 124.2
120 -
billion, compared to a combined net profit of USD0.8 100.1 101.2
100 -
billion recorded in 2007.
80 -
60 -
Asia Pacific-based low cost carriers also faced 40 -
challenging market conditions in 2008, with Virgin Blue 20 -
and Air Asia reporting an aggregate net loss, including 0-
fuel hedging losses, of USD242 million, compared to a -1.2 -4.8
-20 -
net profit of USD286 million recorded in 2007.
AAPA Asia Pacific

Revenue Expenses Operating Profit

AAPA OPERATING REVENUE

AAPA consolidated operating revenues increased by AAPA Systemwide Operating Performance

3.6% to USD100.1 billion, from USD96.6 billion USD billion
reported in 2007. Passenger revenues were 7.1%
higher at USD73.8 billion, whereas cargo revenues
declined by 7.2% to USD16.2 billion. 140 -
120 -
6.2 100.1 101.2
AAPA airlines recorded an 8.8% increase in average 100 - 96.6
yields to 88.5 US cents per revenue tonne kilometre 80 - 90.4
(RTK), but this was not sufficient to compensate for 60 -
sharply higher fuel costs. 40 -
20 -
0-
-1.2
-20 -
2007 2008

Revenue Expenses Profit

4 Association of Asia Pacific Airlines

OPERATING EXPENSES AAPA Systemwide Staff Compensation and
Unit Costs
Consolidated AAPA operating expenses rose by 12.8% USD thousand
to USD101.2 billion in 2008. Historically the largest cost
70 - 7.2
item, fuel costs soared 44% in terms of unit costs to 6.8 6.8 6.7 6.8
21.7 US cents per ATK as a result of the spike in crude 60 -
58.8
oil prices. Fuel costs accounted for 38% of total costs 50 - 52.7 54.4
50.7 51.6
for AAPA carriers. Non-fuel costs grew by 3.2% to 37.7 40 -
US cents per ATK. Staff costs, the largest non-fuel cost
30 -
component, declined by 7.5% to USD11.7 billion, with
a corresponding 7.4% decline in average 20 -
compensation per employee. Total unit cost was 59.4 10 -
US cents per ATK, up 15.2% in 2008. 0-
2004 2005 2006 2007 2008

Average Compensation Staff Unit Cost

YIELD AND LOAD FACTORS per Staff (USD thousand) (US cents per ATK)

Average AAPA passenger and cargo load factors

declined by 2.1 pp and 1.9 pp respectively to 73.2%
AAPA Systemwide Overall Load Factor and
and 56.6%, as the decline in traffic demand outstripped
related capacity adjustments. Breakeven Load Factor
%
Overall, the average AAPA load factor was 66.4%, 70 -
dipping below the breakeven load factor of 67.2%. 68.4 68.2 68.5 68.2
68 -
67.2
AAPA members’ overall yield improved 8.8% to 88.5
66 - 66.6
US cents per RTK in 2008. The increase was mainly 66.4
attributable to higher passenger yields, up 10.1%, 65.5
64 - 64.4
which more than offset the decline in cargo yields. 63.4
62 -

60 -
2004 2005 2006 2007 2008

Overall LF Breakeven LF

AAPA Fuel Costs as Percentage of Total Costs

29% 38%

71%
62%

2007 2008
Others Fuel

annual report 2009 5

financial statement

COMBINED AAPA MEMBER AIRLINES SYSTEMWIDE FINANCIAL RESULTS

Calendar Years 2004 to 2008 (USD Million)

2008
DESCRIPTION 2004 2005 2006 2007 2008 Growth
%

A. INCOME STATEMENT

OPERATING REVENUE 68,098 73,778 84,610 96,564 100,050 3.6

Passenger 46,730 50,630 59,302 68,901 73,800 7.1
Cargo 11,849 13,130 14,542 17,400 16,151 (7.2)
Others 9,520 10,018 10,766 10,263 10,099 (1.6)
OPERATING EXPENSES 64,130 72,069 80,911 90,394 101,243 12.0
OPERATING PROFIT 3,968 1,709 3,699 6,169 -1,193 (119.3)
Other Income (Expenses) 599 (144) 1,114 (1,031) (4,335) –
NET PROFIT (LOSS) AFTER TAX 3,606 1,075 3,478 3,934 -4,803 13.1

B. BALANCE SHEET

TOTAL ASSETS 100,439 107,501 119,372 131,286 132,511 0.9

Current Assets 23,400 26,552 30,451 34,380 31,735 (7.7)
Cash and Bank Deposits 8,981 9,841 11,681 12,899 11,928 (7.5)
Inventory 2,551 2,739 2,812 3,080 3,137 1.8
Other Current Assets 11,867 13,973 15,957 18,402 16,670 (9.4)
Long Term Assets 8,720 9,089 9,176 9,950 11,969 20.3
Net Fixed Assets 63,344 66,864 73,666 80,252 81,110 1.1
Other Assets 4,975 4,996 6,080 6,704 7,698 14.8
TOTAL LIABILITIES 70,304 75,129 81,855 92,270 101,179 9.7
Current Liabilities 25,636 29,069 34,822 40,975 45,510 11.1
Long Term Liabilities 38,850 40,547 40,144 44,417 48,687 9.6
Other Liabilities 5,819 5,513 6,888 6,878 6,982 1.5
SHAREHOLDERS FUNDS 30,135 32,372 37,518 39,016 31,332 (19.7)

C. OPERATING STATISTICS

AVERAGE STAGE LENGTH (KM) 1,952 1,996 1,981 1,984 2,003 0.9
AVERAGE FARE in USD 207 220 234 245 270 10.3
PAX YIELD in US cents / RPK 7.6 7.9 8.8 9.6 10.5 10.1
CARGO YIELD in US cents / FTK 25.9 28.0 29.7 33.1 33.3 0.5
TOTAL YIELD in US cents / RTK 66.4 69.5 76.0 81.3 88.5 8.8
UNIT REVENUE in US cents / ATK 45.3 47.3 51.9 55.5 58.7 5.8
UNIT COST in US cents / ATK 42.7 46.2 49.7 51.9 59.4 14.4
OVERALL LOAD FACTOR 68.3% 68.0% 68.4% 68.2% 66.4% (1.9)
BREAKEVEN LOAD FACTOR 64.3% 66.4% 65.4% 63.9% 67.2% 3.3

SOURCE : MIWG Systemwide Financial Results

Notes : a) 2008 includes data from 17 member airlines

b) Currency exchange rates use the IATA mean rate for the corresponding 12-month period, except for VN data
c) pp = percentage points

6 Association of Asia Pacific Airlines

traffic trends
PASSENGER TRAFFIC
Airline traffic trends were reversed after hitting a peak
in the early months of 2008. The global financial crisis
took its toll on trading activities, cross-country
investments and the tourism industry, contributing to
the almost flat 0.8% growth in the total number of
passengers carried on scheduled services worldwide
in 2008, compared to a 6% gain in 2007.
AAPA member airlines saw a 2.2% dip in
international passenger numbers to 140.9 million.
AAPA international passenger traffic in RPK terms
declined by 1.4%. Capacity increased by 1.4% and
the average passenger load factor declined by 2.1
pp to 75.0%.
“Starting in mid-2008, airlines have
experienced a prolonged and painful
period of weaker demand for both
passenger and cargo services.”
2008 was a tale of two halves. The first half of the
year saw AAPA carriers post a moderate increase
of 3% in international passenger numbers and RPK,
with the passenger load factor holding steady at
75.9% on carefully managed capacity. Travel
demand then weakened significantly as a result of
the global economic slowdown. In the second half
of 2008, international passenger numbers tumbled
by 7.0% whilst international RPKs fell by 5.9%. The
average passenger load factor fell by 3.8 pp to
74.0%, despite a year-on-year capacity reduction
of 1.1%.
AAPA’s international premium traffic numbers fell by
4.1%, after a 7.2% increase in 2007. Premium traffic
fell by 4.6% on intra-Asia Pacific routes, and by
3.3% on long haul interregional routes.
For intra-Asia Pacific traffic, AAPA passenger numbers
fell by 2.4% to 91.3 million. China traffic, a major part
of AAPA members’ intra-Asia Pacific traffic, fell by
11.9% following strong growth of 15.2% in 2007.
Growth of AAPA inter-regional passenger numbers
was almost flat, at 0.2% to 34.3 million in 2008.
Traffic growth for the Indian subcontinent, up 3.0%,
and the Middle East/Africa, up 10.8%, were offset
by declines on long haul US and European routes,
which slipped by 3.3% and 0.3% respectively.
For the first six months of 2009, the impact of
Influenza A(H1N1) compounded the airlines’ woes,
contributing to a 7.6% contraction in global
international passenger traffic in RPK terms
following a slight growth of 1.6% in 2008. The
overall passenger load factor fell by 2.9 pp to
72.6%, as falling passenger demand outpaced
capacity cuts.
Asia Pacific airlines were hit particularly hard, with
AAPA members’ reporting a 12.6% decline in
international passenger RPK, compared to an overall
industry decline of 7.6% in the first half of 2009.
annual report 2009 7
During the first half of 2009, the number of passengers AAPA Top Ten Passenger Sectors
travelling on AAPA members’ intra-Asia Pacific routes Between Two Economies
fell by 13.8%. Northeast Asia-Southeast Asia routes
2008
posted a decline of 17.0%. AAPA’s China traffic fell by
Growth Rate %
18.4% during the first six months of 2009, compared
with the 11.9% drop in 2008. Japan - Korea 1.7

Similar trends were reported on AAPA inter-regional Hong Kong - Taiwan -7.5
figures, with passenger numbers contracting by
10.9% in January-June 2009 against a marginal Korea - China -10.0
0.2% growth for the year ended December 2008.
Japan - United States -7.2
Premium travel fell at an even faster pace. For the first
half of 2009, AAPA members reported a shocking Australia - Singapore 10.4
27.4% drop in premium passenger numbers, much
worse than the 4.1% decline seen in 2008. Australia - New Zealand 8.0

Japan - Taiwan 1.9

CARGO TRAFFIC
Indonesia - Singapore 3.7
The slowdown in international trade took its toll on
global air cargo traffic, as reflected in the modest Japan - China -13.6
1.1% rise in cargo tonnage carried on systemwide
scheduled services to 41.9 million tonnes in 2008, Korea - United States 0.3
from a 3.6% gain in 2007, according to ICAO 0 2 4 6 8 10
preliminary estimates.
Passenger numbers (million)
2008 2007
AAPA international cargo traffic underperformed the
industry average, with FTKs declining by 6.7% in
2008. Cargo capacity was reduced by 5.4%, Cargo carried on US and European routes recorded
resulting in a moderate 1.0 pp fall in the average declines from as early as June 2008, culminating in
cargo load factor to 65.5%. double-digit declines during the last few months of
the year.

International Passenger Traffic Growth Rate Trends by Region

RPK % Change
25

20

15

10

-5

-10

-15

-20
Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

IATA Asia Pacific Europe N. America M. East AAPA

8 Association of Asia Pacific Airlines

AAPA intra-Asia Pacific cargo traffic dipped by 2.9% AAPA Top Ten Cargo Sectors
to 4.5 million tonnes in 2008. AAPA’s China cargo Between Two Economies
traffic fell by 1.1%, after a healthy 15.7% growth in
2008
2007.
Growth Rate %

Reflecting major inter-links between the Northeast Korea - United States -8.8
Asian and US economies on international trade, the
Korea-US sector topped the list as the largest trade Korea - China 5.3
lane with more than 460,000 tonnes carried.
Japan - Korea -7.6
During the first six months of 2009, global
international air cargo traffic deteriorated sharply, Taiwan - United States -14.2
with FTKs falling by 20.6% compared to the more
modest 4.0% decline in 2008. Slower capacity
Japan - United States -11.3
reductions of 10.4% resulted in a 3.6 pp decline in
global cargo load factor to just 45.3%.
Hong Kong - Taiwan -8.5

AAPA international freight traffic registered a 22.6%

decline in FTK terms, outpacing the 6.7% fall in Hong Kong - United States 6.0
2008. Capacity was reduced by 16.8% in the
January-June 2009 period, resulting in a 4.7 pp Japan - China 2.1
decline in the average cargo load factor to 62.3%.
Hong Kong - Japan -2.4
For the intra-Asia Pacific sector, AAPA cargo
tonnage fell by 18.6% in January-June 2009, from a Hong Kong - Korea 2.3
2.9% decline in 2008, with most routes reporting 0 120 240 360 480 600
sharp declines.
Cargo Tonnage (000)
2008 2007
AAPA cargo tonnage on inter-regional routes fell by
21.3% for the first half of 2009, compared to a 5.2%
decline in 2008. Cargo volumes to/from the US Despite the overall decline for the six-month period,
markets experienced the largest fall (-25.6%) month-to-month statistics revealed a tentatively
followed by the European markets (-22.8%). improving scenario, with AAPA members’ FTK
declines moderating from -27.8% in January 2009
to -17.2% in June 2009.

International Cargo Traffic Growth Rate Trends by Region

FTK % Change
20

15

10

-5

-10

-15

-20

-25

-30
Jan-07

Feb-07

Mar-07

Apr-07

May-07

Jun-07

Jul-07

Aug-07

Sep-07

Oct-07

Nov-07

Dec-07

Jan-08

Feb-08

Mar-08

Apr-08

May-08

Jun-08

Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08

Jan-09

Feb-09

Mar-09

Apr-09

May-09

Jun-09

IATA Asia Pacific Europe N. America M. East AAPA

annual report 2009 9

52nd assembly of presidents
EVA Air played host to the 52nd
Assembly of Presidents on 13-14
November 2008 in the city of
Taipei, with nearly 200 delegates
from various sectors of the
aviation industry present at the
event.
CEOs and senior executives
of the AAPA member airlines,
as well as aviation industry
partners including regulators,
manufacturers, suppliers, airports
and other service providers
thoroughly enjoyed the
opportunity to exchange views
and reinforce established industry
relationships. The mood of the
meeting was friendly and
constructive, in spite of the
difficult times confronting the
airline industry.
In addition to serious discussions
on industry matters, delegates
were treated to some spectacular
10 Association of Asia Pacific Airlines
cultural performances and were
appreciative of the warm and
generous hospitality of their Taipei
hosts.
The opening ceremony included
remarks by Mr. Oliver Fang-Lai Yu,
Administrative Deputy Minister of
the Ministry of Transportation and
Communications, emphasising
the positive role played by aviation
in economic and social
development.
In his keynote address, Mr.
Andrew Herdman, Director
General of the Association of Asia
Pacific Airlines, noted that
following several years of steady
growth, the situation had abruptly
reversed. A slowing global
economy was proving extremely
challenging for airlines around the
world. The growth in passenger
numbers was just 2% in 2008,
while cargo volumes had fallen
below the levels of the previous
year. Industry profitability was
under severe pressure, with Mr.
Herdman warning that, “We have
already seen a number of airline
failures. Some others won’t
survive the current crisis.”
Once again facing turbulent
times, Asia Pacific carriers were
responding appropriately, by
making careful adjustments to
both capacity and route
networks, as well as seeking
further operational cost savings.
Mr Herdman emphasised AAPA’s
commitment to act as the trade
association for all Asia Pacific
based international airlines,
regardless of business model,
and said the Association was
always willing to welcome new
members. AAPA continued to
play an important and valuable
role in ensuring that the region’s
views are heard and given proper
weight in international debates on
key aviation policy issues.
Mr Olivier Onidi, the European
Commission’s Head of Unit for
Internal Markets, Air Transport
Agreements and Multilateral
Relations delivered a wide
ranging and thought-provoking
presentation on various aviation
policy issues. Mr. Onidi also took
part in a lively and entertaining
CEO panel discussion moderated
by Tom Ballantyne of Orient
Aviation, together with Mr. Chew
Choon Seng (Singapore Airlines),
Mr. Idris Jala (Malaysia Airlines),
and Mr. Pandit Chanapai (Thai
Airways International).
AAPA ASSEMBLY OF PRESIDENTS
RESOLUTIONS
At the conclusion of the
Assembly, AAPA member airlines
strongly expressed their collective
views on major industry policy
topics, passing the following
resolutions:
Financial Strain on Industry
AAPA called on governments and
service providers to refrain from
putting further financial strain on
the aviation industry through
excessive taxes and charges. The
Association additionally called for
airports to adopt transparent, fair
and reasonable charges in
accordance with ICAO principles.
Air Traffic Management
Airspace congestion, delays and
environmental pressures remain a
major challenge for air carriers.
AAPA called upon governments
to collaborate and co-operate
with stakeholders on the
development of future ATM and
infrastructure improvements with
the objective of ensuring proper
harmonisation and technical
inter-operability.
Passenger Facilitation
Recognising that the global airline
industry transports 2.2 billion
passengers every year, AAPA
called on governments to
embrace the use of new
technologies to streamline the
passenger travel experience and
at the same time enhance border
security.
Air Cargo Security
Noting that globally, airlines
transport goods representing
35% by value of international
trade, AAPA called on
governments to establish aviation
security measures in a manner
that strikes a balance between
the requirements of national
security and the need for efficient
cargo facilitation.
annual report 2009 11
AAPA fleet

AS OF NOVEMBER 2009
PASSENGER
AIRBUS BOEING ATR
AIRLINE B717/ Q200/
A300 A319 A320 A321 A330 A343 A345/6 A380 B737 B737NG B747 B744 B767 B777 DC9 MD90 ATR-72 Q100 300
AIR NEW ZEALAND 12 16 7 5 8 11 23
ALL NIPPON AIRWAYS 29 20 24 15 55 43 5
ASIANA AIRLINES 11 14 8 5 2 7 10
CATHAY PACIFIC AIRWAYS 32 15 23 30
CHINA AIRLINES 17 6 10 13
DRAGONAIR 10 6 14
EVA AIRWAYS 11 3 14 3
GARUDA INDONESIA 10 35 20 3
JAPAN AIRLINES 22 23 25 6 37 46 46 14 16 4 1
KOREAN AIR 8 19 30 21 23
MALAYSIA AIRLINES 14 37 3 13 17
PHILIPPINE AIRLINES 4 18 8 4 5 3
QANTAS AIRWAYS 33 4 22 3 24 38 30 29 11 21
ROYAL BRUNEI AIRLINES 2 2 6
SINGAPORE AIRLINES 8 5 8 9 77
THAI AIRWAYS INTERNATIONAL 17 21 10 6 18 20 2
VIETNAM AIRLINES 10 15 4 10 11

TOTAL BY AIRCRAFT TYPE 47 6 125 39 188 25 15 11 166 150 6 199 148 298 14 30 24 4 53

The effects of the global economic
downturn, volatile fuel prices and
falling passenger and cargo yields
has forced airlines to reduce
capacity, delay new aircraft
deliveries, and retire or park
aircraft to remain competitive. The
current AAPA fleet, including
regional and turboprop aircraft,
totalled 1,782 aircraft. This is made
up of 937 wide-bodied aircraft,
including Combis, 547 narrow-
bodied, 158 turboprop aircraft and
140 pure freighter aircraft. Japan
Airlines tops the list with 292
aircraft, followed by Qantas
Airways (233), All Nippon Airways
(212), Cathay Pacific Airways
(124), Korean Air (124), and
Singapore Airlines (119).
The majority of AAPA member
airlines’ fleets only saw minor
changes in numbers in 2009.
Royal Brunei Airlines and EVA Air
saw their fleet remain unchanged,
while four airlines: Dragonair,
China Airlines, Asiana Airlines and
Korean Air saw reductions due to
the retirement of older aircraft.
All Nippon Airways and Japan
Airlines, on the other hand, saw
increases in fleet size due to the
consolidation of smaller domestic
operations. Qantas Airways’ fleet
has also increased due to the
growth of its Jetstar and regional
operations.
Boeing continues to dominate
AAPA member airlines’ fleet type
with a 65% market share, while
Airbus currently accounts for
26% of the overall fleet.
Bombardier is the leading
supplier of regional and
commuter aircraft for AAPA
members.
Orders have been placed for over
480 new aircraft, including the
A330, A350, A380, B737 NG,
B777 and B787, which are
scheduled for delivery in phases
up to 2013.
The B747 (322 aircraft) and B777
(298 aircraft) remain the most
popular wide-bodied passenger
aircraft among AAPA members
with an additional 28 B777 and 10
B747 to be delivered in the
coming five years. Firm orders for
B737-NG (103) and A320 (64)
aircraft to be delivered by 2013
indicates further demand for
narrow-bodied aircraft types
among AAPA members. In terms
of newer aircraft types, AAPA
carriers have placed firm orders
for the A380 (43 aircraft), the long
awaited B787 (122 aircraft) and
A350 (55 aircraft).

12 Association of Asia Pacific Airlines

 Global B747 Fleet By Operator Region
COMBI FREIGHTER
BOMBARDIER EMBRAER OTHERS BOEING AIRBUS BOEING Total by Airline
Europe 24% Africa 5%
Airline Code
Q400 CRJ200 E170 B744 A300 B733 B747 B744 B767 MD11 Middle East 8%
18 100 NZ
14 7 212 NH Other Asia
America 9%
3 7 1 68 OZ Pacific
24 124 CX 12%
20 66 CI
1 31 KA
4 9 8 52 BR
68 GA AAPA 42%
11 9 6 15 1 7 3 292 JL
1 22 124 KE
4 2 90 MH Global A330 Fleet By Operator Region
5 47 PR
14 4 233 QF Africa 2%
10 BI Europe 27%
Middle East 14%
12 119 SQ
94 TG
2 52 VN
Other Asia
44 9 6 35 8 0 4 5 104 11 8 1782 TOTAL America 13% Pacific
14%

The average aircraft age of the AAPA 30%

AAPA fleet continues to be
relatively low at 9.4 years, with
Singapore Airlines having the Global B777 Fleet By Operator Region
youngest fleet with an average
age of 5.9 years. The average Europe 16% Africa 2%
fleet age is expected to remain
Middle East 16%
low in the coming years due to
AAPA member airlines’
continuous investment in new America 21% Other Asia
technology aircraft to meet Pacific
customer demand, enhance fuel 7%
efficiency and improve
environmental performance.

AAPA 38%

annual report 2009 13

excessive regulation
The airline industry has always
been subject to close scrutiny
and regulatory oversight, not
least because of the need
to maintain the highest
safety standards. Unfortunately,
regulation of the industry did not
stop there, instead permeating
almost every aspect of the
business. Such rules and
regulations are promulgated by
national governments, as well as
international bodies.
Airlines face a number of
fundamental restrictions on how
they do business, with limits on
ways in which they can access
and serve markets, governed
by a historical aero-political
regulatory framework of
bilateral air services agreements.
National ownership and control
requirements prevent airlines from
fully accessing international
capital markets, resulting in a
highly fragmented industry.
International mergers, commonly
seen in other sectors, simply
cannot take place. Whilst
progressive liberalisation has at
least allowed the industry to
expand to meet growing demand,
the shape of the industry reflects
these distortions, and may also
account for other structural
weaknesses which underlie the
14 Association of Asia Pacific Airlines
chronically poor profitability of the The US Department of Homeland
airline industry. Looking to the Security (DHS) in 2008 issued a
future, it seems clear that further Notice of Proposed Rulemaking
liberalisation is needed to address (NPRM) proposing to make it
these fundamental challenges and mandatory for airlines to collect
pave the way for the successful and submit biometric data of
evolution of the industry. departing foreigners at airports
and seaports. AAPA, working with
In the past year, governments other industry stakeholders,
and regulatory agencies have raised vigorous objections to
continued to progress several airlines being made to undertake
industry regulatory initiatives, what was clearly a government
some unfortunately introduced responsibility. After a coordinated
with little or no industry lobbying campaign, funding for
consultation. the programme was blocked, with
Congress instructing DHS to
Flying is not only the safest form conduct additional pilot studies
of travel, but also highly secure. before final recommendations are
However, governments have made. AAPA will continue to
developed a habit of imposing lobby on behalf of airlines against
layer upon layer of additional this ill-conceived initiative.
security requirements on aviation.
Too often, such measures seem
to be reactive in nature, based on
fear rather than a balanced
evaluation of threats and risk
assessment. There is a reluctance
to subject proposed new security
initiatives to an objective
appraisal of the related costs
weighed against the benefits to
society.
“ Airlines need greater
freedom to operate
just like any other
industry.”
Airlines are already required to
submit extensive information
about passengers to governments
around the world in accordance
with various Advance Passenger
Information System (APIS)
requirements, in some cases
including more comprehensive
data on travel plans contained in
airline passenger name record
(PNR) data.

The US Government has recently

made additional demands, with
the introduction of new and
often overlapping requirements,
including the Electronic System
for Travel Authorization (ESTA), a
form of e-visa for travellers from
countries previously exempted
under the US Visa Waiver
Program. The US Government
has also introduced its Secure
Flight scheme, whereby all
passenger data has to be
submitted for pre-clearance
against US security watchlists.
With renewed attention being
given to health crises
and communicable disease
pandemics, the US Centers for
Disease Control (CDC) is planning
to mandate some form of
additional advance passenger
data transmission by airlines. The
Final Rule is imminent, and it is
hoped that its implementation
takes into account the
representations and submissions
made by various industry groups
since the NPRM was first
issued in 2005. A number of
other governments have also
introduced additional reporting
requirements in response to the
swine flu outbreak.
The fundamental problem with
all these reporting requirements
is the lack of international
harmonisation, leading to
excessive implementation costs
and continuing confusion
amongst passengers regarding
the proliferation of both paper
forms and a multiplicity of
electronic reporting requirements.
AAPA will continue to press for
closer consultation and improved
international coordination to
develop common interfaces and
data standards.
Another area of concern is the
proliferation of legislation under
the heading of consumer
protection. Some years ago,
the EU introduced regulations
on denied boarding and
compensation for cancellations
and long delays. Even today,
there are continuing legal
arguments regarding the
interpretation of those rules,
including the definition of
“extraordinary circumstances”
and the relevant jurisdiction to be
applied to international journeys.
Meanwhile, both the US

annual report 2009 15

Congress and the Canadian
House of Commons are
proposing to implement their own
versions of a Passenger Bill of
Rights relating to long delays.
Other consumer related
legislation covers the handling of
passengers with disabilities or
with reduced mobility. The
challenge, particularly for
international airlines, is how to
comply with often inconsistent
and contradictory requirements.
Despite the fact that airlines in
general struggle to earn positive
returns on invested capital, many
governments continue to treat
the aviation industry as a
cash cow and convenient
revenue collection mechanism.
Government taxes and charges
are estimated to account for
around 15% of the average ticket
price, even though the industry
already pays separately and in full
for its own infrastructure,
including airports and air
navigation services.
“Governments need to
fundamentally re-think the
rationale for new
regulatory initiatives.”
16 Association of Asia Pacific Airlines
A number of governments have
announced plans to introduce
additional taxes on travel under the
guise of “green” initiatives, one of
the most controversial being the
UK Air Passenger Duty (APD),
which will cost passengers US$4
billion annually. This can only be
described as a blatant money-
grab; none of the money
collected is channeled towards
environmental initiatives. In another
unwelcome development, the
US authorities have recently
introduced a US$10 charge on
foreign visitors from visa waiver
countries, supposedly to fund
tourism promotion. Elsewhere in
the world, the Indian government
imposed new fees without
proper consultation with industry,
whilst the Maldives government
announced that it intends to
introduce an “environmental tax”
on tourists, even though tourism is
one of the key contributors to the
local economy.
More encouragingly, plans by
several other governments to levy
departure taxes on air travellers
were withdrawn after it became
clear that the damage to the
wider economy would far exceed
the revenues raised.
AAPA will continue to lobby against
excessive and unjustified taxes
and charges, working closely with
colleagues in IATA and other
industry stakeholder organisations.
Excessive regulations severely
constrain the way in which airlines
operate in what should be a more
openly competitive marketplace.
This limits consumer choice, at
the same time increasing overall
costs. Airlines need greater
freedom to operate just like any
other industry, in a globally
competitive sector. Governments
need to fundamentally re-think
the rationale for any new
regulatory initiatives, and take
care to ensure that the intended
benefits exceed the overall costs
of implementation, taking into
account the wider social and
economic benefits of meeting the
growing demand for air travel.
safety

The year 2009 opened with the

near disaster of US Airways flight
1549 with a water landing on the “Flying is the
Hudson River following a bird safest form of
strike after takeoff from New
York's LaGuardia airport. All
travel, but there
passengers onboard survived the is no room for
ditching, safely evacuated the complacency.
aircraft and were rescued by
passing ferries and local boats.
Our target is
Although this was a highly zero accidents
unusual incident, it clearly and zero
demonstrated the value of an
experienced and professional
fatalities.”
crew, good decision making,
good communications, and
situational awareness.
Reviewing the industry’s safety Asia Pacific carriers’ safety
performance over recent years (see performance continues to
As of October 2009, there had
figures 1 & 2), the average industry improve and is comparable to
been 8 major accidents
major accident rate has improved industry standards. AAPA carriers
worldwide this year involving
steadily, representing almost a achieved the very highest
Western-built jet aircraft, which
30% improvement since 2003. In standards of safety in 2008, and
had resulted in 410 passenger
2008, the industry experienced an in 2009 continue to maintain the
fatalities. In addition, two
accident rate of one accident for level of vigilance needed to
accidents involving Russian-built
every 1.6 million flights. This was a ensure safety performance
aircraft (Tu154 and Il62) also led
slight deterioration compared to remains comparable with major
to significant fatalities.
the 2007 performance; however, airlines in the United States and
the total number of fatalities from Europe.
The accident rate in the first half
aviation accidents fell from 576 in
of the year was somewhat higher
2007 to 396 in 2008.
than the established trend of
recent years, leading some to
question whether the industry’s Fig. 1
record of steady improvements in INDUSTRY SAFETY RECORD 2003-2009
safety performance was in danger Western-Built Jet Aircraft
of being reversed. Pressure
mounted to review and potentially 2003 2004 2005 2006 2007 2008 2009*
overhaul core elements of the air
transport industry’s approach to Major Accidents 18 18 18 15 14 17 8
aviation safety management Accident Rate^ 0.87 0.78 0.76 0.61 0.52 0.63
developed over the past decade. Fatal Accidents 7 5 8 8 7 10 7
However, based on the latest
Fatalities 484 235 757 549 576 396 410
available data, the projected
results for the full year seem likely ^ per million sectors
to be in line with previous trends in * year to date 31 October 2009
safety performance improvement.
annual report 2009 17
Fig. 2
staff training and the sharing of
IMPROVING SAFETY PERFORMANCE TRENDS 2001-2009 best practices. Overall, whilst we
Major Accident Rates by Operator Region can learn a great deal from a
Western-Built Jet Aircraft forensic analysis of accidents and
1.7 - incidents, the major emphasis has
1.6 - Dated: 3 years moving average
1.5 - moved towards a prognostic
Major Accident Rates (per million sectors)

1.4 -
approach to safety management.
1.3 -
1.2 - The aim is to evaluate risk factors,
1.1 -
1- and identify precursors to potential
0.9 - accidents, so that appropriate
0.8 -
0.7 - action can be taken, even before a
0.6 - safety incident occurs.
0.5 -
0.4 -
0.3 -
Close collaboration across the
0.2 -
0.1 - industry is a key feature in
0-
2001 2002 2003 2004 2005 2006 2007 2008 2009 working towards this shared
World North America Europe Asia Pacific AAPA IATA
objective. Examples of such
programmes include the US
The travelling public increasingly The industry’s excellent safety Commercial Aviation Safety Team
recognises that flying is the safest record is the result of concerted (CAST), European Commercial
form of travel, but there is no room efforts by regulatory agencies, Aviation Team (ECAST) and the
for complacency. Our target is zero the aviation industry and ICAO Cooperative Development
accidents and zero fatalities. From other safety stakeholders to of Operational Safety
an industry standpoint, safety continuously develop new and Continuing Airworthiness
remains the number one priority. technology, operational standards, Programme (COSCAP).

18 Association of Asia Pacific Airlines

These programmes have
developed safety enhancements,
intervention strategies and action
plans to eliminate possible
precursors and contributing
factors to potential events.
The global implementation of
Enhanced Ground Proximity
Warning Systems (EGPWS) has
all but eliminated accidents
characterised as Controlled Flight
Into Terrain (CFIT). Similarly, the
widespread deployment of Traffic
Collision Avoidance Systems
(TCAS) has radically reduced the
risk of mid-air collisions.
Other regulatory and industry
efforts to enhance safety are
ongoing and include Global
Aviation Safety Roadmap (GASR),
Safety Management Systems
(SMS) implementation, Flight
Operational Quality Assurance
(FOQA), Line Operations Safety
Audit (LOSA), Runway Safety
Initiative and Crew Resource
Management (CRM) training.
SMS is a systematic approach
to managing safety, including
the necessary organisational
structures, management
accountabilities, policies and
procedures. From 2009 onwards,
it is an ICAO requirement that all
agencies involved in aviation,
including airlines, airports, air
navigation service providers,
regulators, and maintenance
service providers must implement
SMS. A key aspect of managing
risk throughout the organisation is
to develop a strong safety culture
that encourages the reporting of
hazards, errors, incidents and
accidents without fear of punitive
action. SMS practices also need
to drive performance and
management decision making.
AAPA with its partners is
evaluating “leading edge” safety
performance metrics.
The Flight Safety Foundation
runway safety initiative, completed
in 2009, developed a toolkit and
countermeasures to reduce
incidents involving runway
excursions and overruns. The
AAPA was one of about 20
organisations from around the
world that provided their support to
this initiative. ICAO, FAA and EASA
are also working on comprehensive
runway safety programmes.
Good safety data helps the
industry to identify emerging
safety issues and monitor safety
performance trends. To date,
much of the information has
been collected by different
organisations, including ICAO,
annual report 2009 19
IATA, FAA, EASA and other
national regulators. However,
efforts are underway to share and
eventually integrate access to
these separate databases
through the development of
shared portals and harmonised
data standards.
As already noted, the
enhancement of aviation safety is
a long term and continuously
evolving effort by all safety
stakeholders. The International
Civil Aviation Organisation (ICAO),
Federal Aviation Administration
(FAA), European Aviation Safety
Agency (EASA), Flight Safety
Foundation (FSF), and other
safety agencies and stakeholders
as noted have established
comprehensive safety programmes
and initiatives. Another key
component is effective safety
oversight including performance
audits.
territory, including regular ramp support efforts to strengthen
inspections. Examples of such regulatory oversight across the
programmes include the FAA region, in full compliance with
International Aviation Safety international standards as laid
Assessment program (IASA) and down by the International Civil
the European Commission Safety Aviation Organisation (ICAO),
Assessment of Foreign Aircraft working in conjunction with
programme (SAFA). Failure to be national regulatory authorities and
in compliance with such other safety stakeholders. AAPA
programmes could lead to carriers are committed to
sanctions against individual air maintaining and further
carriers. enhancing the aviation industry’s
enviable safety record, for the
Given the projected growth in air benefit of the travelling public and
transport in the Asia Pacific the continued successful
region, AAPA will continue to development of the industry.
“AAPA carriers are committed to maintaining
and further enhancing the aviation industry’s
enviable safety record.”

Under the ICAO Universal Safety

Oversight Audit Programme
(USOAP), regular audits are
conducted of national safety
oversight systems, assessing their
level of compliance with ICAO
Standards and Recommended
Practices (SARPs).

The primary responsibility for

oversight of individual air carriers
lies with the State which issued
the Air Operator Certificate (AOC).
However, ICAO Annex 6 has
been amended to strengthen the
national oversight of all foreign air
carriers operating in their

20 Association of Asia Pacific Airlines

environment

A well developed air transport

system is an integral feature
underpinning the modern global
economy, providing safe, secure,
efficient and affordable access to
regional and global markets.
Travel and tourism are key
contributors to the successful
social and economic development
of both rich and poor nations.

The Asia Pacific region is home to

two-thirds of the world’s
population and includes diverse
economies representing both
developed and developing
countries. Within Asia Pacific, the
air transport sector supports
more than 3 million jobs and
contributes USD 170 billion to
GDP. Over the next two decades,
growth in the air transport and
tourism sectors are projected
to support almost 20 million
jobs, contributing more than USD
1 trillion to GDP.
Ensuring that such growth
is sustainable raises both
economic, as well as
environmental issues. Tackling
climate change features
prominently on the international
political agenda. Environmental
policies being shaped now by
governments will have a major
long term impact on the
aviation industry as a growing,
and carbon-intensive sector.
AAPA has been actively involved
in addressing this important
debate, engaging actively with
governments and other key
stakeholders.
“Environmental policies being shaped now by
governments will have a major long term impact
on the aviation industry as a growing, and
carbon-intensive sector. “
Fueled by the growing demand Inevitably, this brings the industry
for aviation services, the industry into conflict with the overall goals
is a major target of environmental of significantly reducing total
groups, despite the fact that greenhouse gas emissions.
the industry has a carbon
footprint representing 2% of Responding to this challenge, the
global CO2 emissions, supported industry has established and
by a record of continuous committed to targets to deliver
improvements in environmental an ongoing 1.5% annual
performance through investments improvement in CO2 emissions
in quieter and cleaner technology. efficiency each year to 2020;
carbon neutral growth from 2020;
However, the expected 5% p.a. and a halving of net emissions
compound growth in demand for by 2050 compared to 2005
air travel in the coming decades levels. These are challenging
will more than offset projected and ambitious targets, but
efficiency gains, so absolute certainly achievable using the
emissions from aviation are industry’s established four
expected to double by 2030. pillar strategy, combining

annual report 2009 21

technology, infrastructure,
operational improvements and
economic measures.
The major contributor towards
meeting the fuel efficiency goal
will be the continued investment
in fleet renewal, taking
advantage of new more fuel
efficient airframes and engine
technologies. AAPA members are
leading the way as launch
customers for new generation
aircraft that offer significant
improvements in environmental
performance, including the Airbus
A380, Boeing 787, and Airbus
A350.
Since fuel accounts for 30% of
total airline costs, airlines have
always been focused on striving
for operational efficiency gains to
minimise fuel usage.
The industry is also actively
exploring the potential use of
alternative fuels, including
sustainable biofuels. A number of
airlines, including Air New
Zealand and Japan Air Lines have
been involved in carrying out
initial flight trials to test the
feasibility of using such new fuels,
working with manufacturers
and innovative fuel suppliers.
These tests have successfully
demonstrated that the new fuels,
derived from a variety of biomass
feedstocks, and blended with
conventional jet fuel, can meet
22 Association of Asia Pacific Airlines
the necessary operational and
performance standards. The
formal development of new fuel
specifications is underway, with
the aim of achieving the
necessary certification within the
next two years.
Biofuels offer the potential of a
60-80% reduction in life-cycle
CO2 emissions, as a result of the
CO2 absorbed during the
cultivation of the plant or
algae feedstocks. However, the
economics of biofuels are
complex, and there are a number
of challenges to be overcome
before biofuels can reach
commercial viability. Experience
with other green energy initiatives
points towards the need for
governments to support further
research and development, and
carefully consider the fiscal and
regulatory frameworks to
incentivise the adoption of low
carbon fuels.
In the United States, the Civil
Aviation Alternative Fuels Initiative
(CAAFI), a joint initiative that
brings together government,
industry and academic
stakeholders, has taken the lead
in this area. Elsewhere, the
Sustainable Aviation Fuel Users
Group (SAFUG) is working to
accelerate the development and
commercialisation of sustainable
aviation fuels. Asian carriers play
a leading role in this activity.
Another key area of opportunity
lies in improving the efficiency of
aviation infrastructure, notably Air
Traffic Management (ATM).
Representing the world’s air
navigation service providers,
CANSO has estimated that the
ATM system currently operates at
92% efficiency, with the prospect
of being able to achieve an
additional 4% improvement in fuel
and emissions efficiency through
the widespread adoption of the
latest generation of navigation
technologies and concerted action
to streamline the associated traffic
management processes. However,
they caution that this will require
very significant investments and
considerable effort over the
coming decades. They also note
that ATM has to operate within
constraints beyond its control,
including conflicts with military
controlled airspace, unpredictable
weather patterns, and over-riding
safety requirements.
The United States and Europe are
each developing their future air
traffic modernisation programmes
based on the Next Generation Air
Transportation System (NextGen)
and the Single European Sky ATM
Research (SESAR) respectively.
These are expected to provide
notable operational efficiencies,
cost savings and emissions
reductions. Efforts to harmonise
these programmes and ensure
global inter-operability are also
underway.
In the Asia Pacific region, a similar
coordinated effort is required in
order to more effectively respond
to future growth. One example of
effective regional collaboration
already taking place is the Asia
and South Pacific Initiative to
Reduce Emissions (ASPIRE).
Established jointly by air
navigation service providers from
the US, Australia, and New
Zealand, more recently joined by
Japan and Singapore, ASPIRE
has conducted demonstration
flights to showcase best
practices to maximise
operational efficiencies and
emission reductions within the
Pacific region.
The above measures will
contribute towards meeting
the industry’s commitment
of delivering continuous
improvements in fuel efficiency.
Achieving the industry’s goals of
carbon neutral growth from
2020, and a 50% reduction in
net emissions by 2050
compared to 2005 levels, will
require additional steps, most
importantly, the use of economic
“The aviation industry takes its environmental
responsibilities seriously, and is committed to
working together with governments, through
ICAO, to address these important environmental
challenges.”
measures in the form of carbon
taxes or emissions trading. The
aviation industry is willing to
make a fair contribution in
proportion to its global CO2
emissions towards climate
change mitigation and
adaptation. The benefits of
economic measures, ideally as
part of a global scheme, would
come from funds being
channelled to other sectors
where there are much greater
opportunities to cost effectively
improve energy efficiencies, and
realistic possibilities of switching
to less carbon intensive
technologies. In this way, the
benefits of allowing aviation to
grow would more than offset the
full cost of the environmental
impact, whilst contributing
significantly to the effort to
reduce overall global emissions.
The unwelcome alternative to
globally harmonised economic
measures is a patchwork of
uncoordinated schemes and
arbitrary levies targeting aviation
that would not achieve the desired
environmental objectives in a cost
effective manner. There are
already plans to introduce national
emissions trading schemes in the
EU, Australia, New Zealand, USA,
and Japan amongst others. The
problem with such national
initiatives is that they have
international consequences, with
the risk of overlapping and
excessive levels of charges. At the
same time, there is no assurance
that funds raised in this way, or
through arbitrary taxes such as
the UK Air Passenger Duty, will be
used to address genuine
environmental objectives. Airlines
are quite prepared for policies that
put a price on carbon, but only
ask that they receive proper
credit, are only charged once, and
at the same rate as other industry
sectors.
Meanwhile, the broader political
debate on climate change, being
conducted through the UNFCCC,
is currently deadlocked on
issues dividing developed and
developing countries. Hopefully,
these issues will soon be
resolved.
Despite the difficulties, the
aviation industry takes its
environmental responsibilities
seriously, and is committed to
working together with
governments, through ICAO,
to address these important
environmental challenges.
annual report 2009 23
innovation
Air travel plays an important role
in our daily lives, bringing global
mobility, together with
reassuringly high levels of safety
and reliability. In an intensely
competitive marketplace, airlines
are constantly seeking ways to
provide even better service to
customers, through product
innovation and adapting quickly
to meet the changing demands of
travellers worldwide.
As Asian populations grow more
affluent and have a greater
propensity to travel, the overall
growth in the Asia Pacific market
has meant more commercial
opportunities for the airline
industry. The multiplicity of
24 Association of Asia Pacific Airlines
business models and products
offered by carriers today is to be
welcomed, as this represents
more choices for consumers.
Particularly on longer routes,
passengers are willing to place
greater value on higher levels of
comfort, space and service.
Accordingly, leading airlines have
developed a variety of products,
ranging from extra legroom in
premium economy cabins, to flat
beds in business class, and even
more luxurious first class cabins.
Although the premium cabins are
mainly targeting business
travellers, a significant proportion
of those seats are used by leisure
travellers who similarly see the
value as justifying the extra cost.
Overall, in an international
context, customer demand and
competition has resulted in higher
standards of comfort and service.
However, the current economic
downturn has inevitably led to
weaker demand for business
travel, leading some to question
the validity of the full service
business model and premium
cabins in particular.
Similar concerns were expressed
during past recessions, but
invariably demand for premium
products recovered strongly once
economic conditions improved.
Whilst there may be a temporary
mismatch between the products
“The airline industry is characterised by
intense competition, marked by product
differentiation and service innovation, as
well as highly dynamic pricing strategies.”

on offer and what the market
demands, cabin reconfigurations
are a time consuming and costly
exercise. Consequently, airlines
have had to respond to current
challenges by more aggressively
marketing their premium products
using a variety of pricing
initiatives and other promotional
campaigns to win back value-
conscious customers.
In short haul markets, customers
obviously place more emphasis
on schedule frequency, and
reliability, although there is still a
business market segment willing
to pay a modest premium for a
higher level of comfort and
service. Some new entrants have
even begun offering customer
loyalty programmes and lounge
access. On the other hand, some
full service carriers have begun
experimenting with so-called
menu pricing, offering customers
a choice of separately priced
service options, such as seat
selection, or for checking extra
bags. Unbundling services in
this way should lead to
closer matching of customer
needs, although the process can
be taken too far. Experience
from other industries reminds
us that a la carte pricing and
inclusive packages of services
can happily co-exist.
The successful entry of new
budget carriers to key markets
has stimulated further
competition, and now accounts
for about 14% of the total intra-
Asia Pacific market in seat
capacity terms. Established
carriers have responded by
streamlining their own products,
trimming costs, and competing
more aggressively in discounting
prices to attract discretionary
travellers.
A number of major carriers have
adopted multiple branding
strategies, and established stand-
alone low cost carrier operations
focused on key short haul leisure
markets. The most successful
example of this approach has
been Qantas and its very
successful development of
subsidiary Jetstar.
As further evidence of the
convergence of competing
business models, both Jetstar
and Air Asia X have recently
expanded their networks to
include a number of medium and
longhaul routes, served with
widebody aircraft. Whilst focusing

annual report 2009 25

on leisure traffic, it is worth noting
that such services offer two
classes of seating, to appeal to
those customers willing to pay
extra for added comfort. The
front end premium or “economy
plus” fares bundle in inflight
entertainment offerings and more
elaborate meals, for which
passengers would have had to
pay an additional charge on their
single class, short haul flights.
Furthermore, the use of widebody
aircraft adds another dimension
to the business model, namely
the need to generate significant
additional revenues from the air
cargo business.
26 Association of Asia Pacific Airlines
Inflight entertainment systems
have been another fertile area for
competitive product innovation.
Passengers are offered an
increasingly wide range of
movies, music, games and other
services, delivered through inseat
displays. Screen sizes have been
getting larger, and are now fully
integrated into the seat design.
Other features include inseat
power supply for passengers to
use laptops or other equipment.
The provision of USB sockets
also allows users to access their
own media content or personal
information. A number of
suppliers are also rolling out
inflight connectivity options,
allowing customers to make
phone calls, access emails or
even surf the net. Whilst these
technologies are now entering
service, the variety of proprietary
standards being used may hold
back widespread adoption. In
addition, there are still differing
views on how such services
should be paid for, with airlines
trying out a variety of charging
schemes.
Other areas where digital
connectivity solutions are having
an increasing impact is in
streamlining passenger processes.
The use of self-service kiosks at
airports is spreading rapidly to
international travel, having initially
been deployed in major domestic
markets. The opportunity to make
changes to reservations, and
check-in online, from home or
office, are other new features
which have been enthusiastically
adopted by regular travellers.
Similarly, the use of mobile phone
messaging to confirm flight
information and provide timely
updates on gate changes,
weather conditions or other flight
disruptions helps keep customers
fully informed.
Even governments are finally
embracing the use of new
technologies, including biometric
recognition such as fingerprint
reading or iris scanning, in order
to simplify and streamline the
process of conducting necessary
border and security checks.
Passengers look forward to the
day when some of the many
government forms which
currently have to be completed
can eventually be eliminated. The
airline industry has already set a
good example with the
successful implementation of
electronic ticketing worldwide
and the effective elimination of
paper tickets.
The airline industry is
characterised by intense
competition, marked by product
differentiation and service
innovation, as well as highly
dynamic pricing strategies. In
order to retain customers and to
attract new passengers, airlines
will continue to invest in
innovative products to enhance a
passenger’s flying experience.
With the Asia Pacific region
poised to lead in terms of traffic
growth in the coming decades,
the region’s carriers are expected
to maintain their lead in
delivering both customer service
excellence, and value for money,
through a process of continuous
innovation.

“The region’s carriers are expected to

maintain their lead in delivering both
customer service excellence, and value
for money, through a process of
continuous innovation.”

annual report 2009 27

outlook 2010
Thankfully, we seem to have
weathered the worst of the storm;
the global economy is beginning
to show some signs of recovery
following widespread declines in
output of both goods and
services. The rebound has
been led by the Asia Pacific
region, where both individuals
and governments are less
encumbered by the excessive
levels of debt which continue to
weigh heavily on both business
and consumer sentiment in North
America and Europe.
The IMF anticipates global GDP
growing by 3% in 2010. This figure
reflects expectations of a modest
recovery in the major developed
markets, but strong growth in
China and India could see the
Asian region achieving 7% growth
in the coming year. Whilst positive,
there is still the question of whether
this resurgence will be self-
sustaining. Western consumers,
facing still rising unemployment,
are cutting back and taking steps
to reduce debts, whereas in
developing and emerging
economies, the challenge is how to
diversify beyond over-reliance on
exports to a more balanced
scenario including faster growth in
domestic consumption.
“ Global air travel demand is expected to double
over the next fifteen years, led by faster growth
in the Asia Pacific region.”
28 Association of Asia Pacific Airlines
In recent months, airlines have
seen load factors recover, but low
yields mean continuing losses for
the industry. Rising oil prices are
certainly not helping. Even when
we do see a further pickup in
demand, it will require careful
management of capacity, costs
and pricing to nurse battered
balance sheets back to full health.
We must also never lose sight of
the need to drive further
improvements in efficiency and
cost-effectiveness throughout the
value chain.
If there is a part of the industry
that appears to have been
unaffected by the recession, it is
the fact that the regulatory
agenda has remained as busy as
ever. Fresh challenges include
onerous security procedures for
both passengers and cargo that
often seem to be driven more
by fear than cold reason;
inconsistencies in the multiple
ways in which passenger
information has to be provided to
government authorities; and the
imposition of further layers of
government fees, taxes and
charges.
Even more fundamental, is the
need for further structural reform,
including a fresh look at
restrictions on national ownership
and control which hold back
consolidation and hinder access
to international capital markets.
With the expected resumption of
growth, environmental challenges
remain high on the political
agenda. The aviation industry is
united in its commitment to
ambitious environmental targets,
but is being held back by the
failure of governments to resolve
major differences between the
views of developed and
developing states. AAPA will
continue to press for a global
sectoral approach to aviation
emissions, working through ICAO.
To end on a distinctly positive
note, global air travel demand is
expected to double over the next
fifteen years, led by faster growth
in the Asia Pacific region, which is
set to become the world’s largest
aviation market. AAPA and its
member airlines will be at the
forefront of these developments,
playing an important role in
shaping the future of the industry
whilst serving the wider
community.
www.airnewzealand.com www.evaair.com www.qantas.com

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www.flyasiana.com www.jal.com www.singaporeair.com

www.cathaypacific.com www.koreanair.com www.thaiairways.com

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