Airline Indutry - Asia Pacific Region

1.Executive Summary

Airline is a complex industry. It involves major capital requirements for aircraft, monitor by government regulations, restrictions and state policy, competitive reaction from other tourist transport and requiring high level of expertise to operate and manage. Airline facing increasing globalization, rising fuel prices, heavy repair & maintenance cost, raising labor costs, increasing competition and requirements for higher service levels and greater flexibility.

The acceptance of China to World Trade Organization and Beijing's winning bid for 2008 Olympics is expected to have a beneficial effect on airline industry to Hong Kong. However, loosening regulation of China's airline industry, additional flying routes, stake, merger and alliances increase the competition of Hong Kong airline business.

These significant changes in the market environment and fundamental shifts in customer demands are requiring the operator to re-focus competitive strategy. Apart from achieve low cost or differentiate it by enhancing product attributes in a way that adds value for the customer. Globalization, Airline Alliances, Frequent Flyer Programmes and Integration in tourism sector becomes a commonly adopted ways for airline operators to extend their capacity and market reach.

An airline operators must strive to maximize the operational efficiency across the range of airline business processes, including process reservations and bookings, customer services, corporate image, travel experience and supply chain management.

2. Airline Industry in Asia Pacific Region

Faced with rising aviation fuel prices, increasing competition and airline globalization, new openings into Asian countries and additional flying routes being launched, it has been an intensive competition for Airlines.

Asian airlines are campaigning aggressively to ensure passengers have the latest technology and the best available service at their fingertips. Having dealt with the detrimental effects of the Asian economic crisis and embracing global competition, the Asian airline industry is growing. According to the Association of Asia Pacific Airlines, the recovery growth rate of air traffic on Asian-based airlines will reach 11-12 % in the short term, with figures expected to sit around 9% in the next 18 months. Passenger and freight loads have already indicated this anticipated boom in Asian airline travel, despite the 11% increase in airline tickets over the last three years.

Several fresh initiatives throughout the course of the year are set to accelerate this growth. A new group of Asian and Pacific Airlines has formed to launch a joint on-line travel center for both business-to-customer and business-to-business services. Some airlines, including Qantas, Singapore Airlines and Malaysian Airlines, are using the web-based exchange to expand customer service and provide new technology-based solutions for assisting travel in the Asian region.

Mergers and alliances have also played a prominent role in the airline industry this year. Several nations have contributed to the corresponding 'open skies' pacts across the Pacific, which will streamline international aviation accords by reducing the number of negotiations made between countries. In November 2000, the US signed the first multilateral aviation agreement of this kind with Brunei, Chile, New Zealand and Singapore.

The impressive strength and scope of the Star Alliance has also been boosted in last year with the introduction of Singapore Airlines into the group. The most significant alliance to affect the Asian region was Air New Zealand's purchase of News Limited's 50% stake in Ansett Australia. Aiming to create a globally competitive Australasian airline group, Air New Zealand's acquisition, undertaken in last February, will give both brands a wider range of aircraft deployment and financial backing, and present a powerful base to cater for the growing airline trade presenting itself in the Asia-Pacific region.

However, it is argues that, 'even thought the major airlines of Asia belong to the world's fastest growing airline market, they have remained relatively small in terms of network size, traffic volume and operating revenue, compared with major carriers in the United States and Europe'. Part of this is related to the restrictive bilateral agreements, which also protect the home market.

Some states have privatized their airlines and others intend to do so, a considerable number remain state-owned. As Forsyth observes, 'there is a strong correlation between per capita income levels and private ownership. In the richer countries in the region, such as Japan, Korea, Singapore, Taiwan, Malaysia, along with the colony of Hong Kong, all the airlines are privately owned. By contrast, there are few examples of private ownership of airlines in the poorer countries', while a number of governments have allowed the introduction of private airlines (e.g. Asiana in Korea, Dragonair in Hong Kong) to compete on international routes.

3.Asia Financial Crisis

These are frenetic times time for aviation in Asia, although there are still problems leftover from the region's economic crisis which started in July 1997 and continued through 1998 for most markets. Whilst there has not been a full recovery to pre-crisis levels, Asia's economic is now showing recovery from the recession.

The busiest international route in Asia is Hong-Taipei. In terms of international-only traffic, Hong Kong is listed as the largest airport in the region. Most airports for 1999 were showing strong growth. Many of the changes among airlines-caused by the economic crisis, other macro factors, or by the airlines themselves. Airlines' aircraft fleets have also been going through change. There are still some moves in worldwide alliances, with a number of major gaps in their coverage in Asia.

Airline travel in Asia is recovering at a remarkable pace, and carriers are eagerly expanding their passenger and cargo services to complement the trend.

4.Market structure for Airline Industry

It is apparent that where a large number of small firms operate in the sector a competitive market exists. In contrast, where a limited number of firms operate, akin to an oligopoly or at the extreme, a monopoly, different conditions affect the supply of transport services. Various criteria influence the competitive conditions in the market, and factors such as the degree of market concentration