(c) Centre for Asia Pacific Aviation, PREMIUM: Air India confirmed in mid-Aug-08 that it would seek a minimum of INR20 billion (USD458 million) in fresh equity and soft loans from the Indian Government shortly, to fund its increasingly demanding working capital requirements. Chairman & Managing Director, Raghu Menon, stated, “we have not finalised any number [for government support] so far. But it could be more than INR2,000 crore (USD458 million)”. He added, “fares have gone up due to [the] increase in jet fuel prices. We are cutting costs, but the real thing will be [a] fall in fuel prices”.

As the price of oil prepares to dive below USD100 per barrel, the global economic slowdown threatens to usher in the next – and potentially more damaging - phase of the airline industry crisis: demand destruction. The International Air Transport Association (IATA) stated yesterday that strong traffic growth allowed the industry to partly absorb the rise in fuel costs from 2003-2007, but likely support from future traffic growth is “no longer the case”.

(c) Centre for Asia Pacific Aviation, PREMIUM: Some analysts are now predicting a fall in the price of oil below USD100 per barrel, particularly on the back of Hurricane Gustav’s less-than expected impact on oil installations in the Gulf of Mexico, and this week’s pessimistic growth outlook for developed nations from the OECD.

(c) Centre for Asia Pacific Aviation, PREMIUM: As Boeing’s machinists walk to their strike vote in Seattle today, there will be those who see this as a historic stand. And that is the problem for management. Boeing is not known for stable and relaxed relations with its engineers, but even by past rocky standards, the present dispute seems hard to understand, at least superficially. That’s because it may well in fact become historic.

These days, Turkish Airlines’ name seems to appear whenever there is an airline to be bought in Europe. The airline has been suggested as a buyer for Austrian Airlines, Alitalia and, more hopefully, Bosnia-Herzegovina’s B&H Airlines. Continuing – and growing - profitability has allowed these indulgences, as Turkish establishes itself as a frontline carrier. Joining the Star Alliance in April this year has done it no harm and the majority privately held airline links closely to Lufthansa, sharing with the Star leader a 50:50 joint holding in Antalya-based SunExpress (making its bid for Austrian more intriguing).

Last week, as two European airlines – one of them a “flag carrier” – collapsed, few would have noticed a small airline on the other side of the world reporting a profit.  It was Polynesian Blue, hardly a major company, but the event was significant in one respect. For many years, the government of tiny south Pacific nation, Samoa, had squandered much of its annual GDP running an inefficient and unsuccessful flag carrier. In October 2005, Australian airline, Virgin Blue, became a 49% shareholder in a new joint venture with the government and took over operations of the carrier. Tourism traffic has increased nearly 50% annually, the airline has repaid an establishment loan from the government and is making money!

AirAsia’s second quarter profit result contained few surprises. Net profit fell 95% and operating margins slipped below 5%. CEO, Tony Fernandes, stated it was nonetheless a “commendable performance” given that unit fuel price increased by 65% to USD142.5 per barrel. AirAsia is maintaining its contrarian approach of continuing to grow strongly as its competitors cut back.

(c) Centre for Asia Pacific Aviation, PREMIUM: “Slowing economic growth is having a very serious impact on travel demand” – that is the verdict from the Association of Asia Pacific Airlines (AAPA), reviewing the latest set of weak traffic data for Jul-08. Member airlines carried 12.6 million international passengers in Jul-08, 0.6% fewer than in the same month last year, although traffic measured in RPK terms grew slightly, up 0.8%. Traffic data from the International Air Transport Association (IATA) for Asia Pacific airlines has been trending closely with the AAPA results and Jul-08 results are also expected to be weak.

Among the airlines watching Lufthansa’s waltz with Austrian, perhaps none will have keener interest in the outcome than SWISS International. The Lufthansa subsidiary has its hub a mere 700km from the Viennese capital, where Austrian is based. Instinctively SWISS is likely to be more than a little jealously cautious about mutual relationships in the future.

(c) Centre for Asia Pacific Aviation, PREMIUM: The Korean Ministry of Transport this week failed to reject a protectionist request led by its national airline to turn back the clock of liberalisation in the region. The request from several vested interests – worded in clear aviation nationalism overtones – was designed solely to protect local airlines from added competition – and the lower fares that competition would bring.