Asian majors face ever increasing competition as costs rise and profits fall

It’s not a comfortable time in the Asian airline market. From South Korea’s two major airlines Asiana and Korean, which are suffering eroding profitability from low cost carriers, to the challenges faced in Hong Kong and Singapore by once dominant legacy carriers.

The former masters of all – and even now still considered to be among the best airlines in the world, Singapore and Cathay, are finding it hard going. Their shareholders- especially Cathay’s owners the Swire Group – are under increasing pressure to demand better returns.

Only this weekend Singapore Airlines was forced into a humiliating climb down over a credit card fee of just $5. It costs around 2-4% of a ticket total price, depending on card issuer, for airlines to process a ticket. Many airlines charge the processing fees, but recently many have dropped them and absorbed the cost into higher seat prices.

In less than 48 hours the outcry in Singapore was so great the airline withdrew the charge. It may seem simple even minor, but it was an attempt to scrape back some of the rising costs the airlines face.

With fuel prices rising, salaries rising to cope with pilot shortages and cost of living rises for general cabin crew and ground staff, all of Asia’s airlines are under pressure.

The low cost carriers are simply making things worse. Undercutting medium short haul routes is damaging a key segment of traditional Singapore Airlines and Cathay Pacific business. The same is happening in Thailand and Taiwan.

The ownership of Hong Kong Airlines by the all pervasive Hainan Airlines Group has impacted Cathay especially hard, it’s tried to re-make DragonAir as Cathay Dragon but that seems to have had minimal impact.

Singapore was ahead of the game with Scoot, and the entry of that airline into short haul through absorbing Tiger has helped defend its position and expand the brand. These things however have a life of their own and Singapore has made a rod for its own back; Scoot’s success is having a direct impact on the parent airlines long haul business.

The end result seems to be that only new routes and new markets will save the premium airlines, with new aircraft to get them there. What they cannot afford to do is undermine themselves – something Singapore has to be especially aware of.

In the meantime Cathay Pacific is ringing its hands trying to find a balance that will let it compete profitably under huge pressure from Chinese mainland airlines. Along with all the Asian airlines, pressure from Qatar, Emirates, and Etihad are piling on the long haul stress to key Middle East, European and Australasian destinations.

Only imagination, high standards and possibly a culling of routes that simply don’t make financial sense – even if they’re prestigious destinations – can make a real difference. Not everyone wants to fly low cost, finding and keeping those customers is even more crucial than ever before.

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