The Asian aviation industry remains intensely competitive. Traffic and capacity growth continue to outpace other major aviation markets in line with faster economic development in the region. However, profitability gains remain elusive in an environment marked by pricing pressure and fuel price volatility.
New entrants and new business models are encroaching on the legacy airlines’ traditional sources of revenue, gaining share in intra-Asia markets and, to a lesser extent, key long-haul markets. Additionally, the “super connectors” concentrated in the Middle East have impact on traffic patterns between Europe and markets in Asia and Africa.
These competitive pressures are forcing legacy airlines to address key aspects of their business such as their network structures, growth rates and cost competitiveness.
The rise of three large Middle East carriers—the ME3—has been a major source of market erosion. Emirates, Qatar and Etihad have strategically targeted traffic between Europe and Asia, which was once a source of profit for the largest Asian airlines. The ME3 have grown their widebody fleets over the past decade by 10 percent per year, a rate that is four times faster than the Asian majors.1 They also have built sophisticated hub structures designed to divert major intercontinental traffic through the region. Today the ME3 carry more passengers than all Asian network carriers combined.
These competitive dynamics have had a dramatic impact on yields. As measured in US dollars, yields have fallen at a compounded rate of 6.2 percent per year since 2012.2
New entrant low-cost carriers (LCCs) continue to grow aggressively. Market share for LCCs has grown from about 12 percent at the start of the decade to a current position of 25 percent. This shift in market share is set to continue over the next decade. The sustained competition from Asia-based LCCs has impacted yields in intra-Asia markets as well. Compared to 2012, yields today are 20 percent below those levels.3
Customer experience impact
Passengers benefit from the increasingly competitive landscape in Europe, enjoying advantages such as:
To achieve long-term and sustained financial performance, Asian carriers will need to seek a more rational competitive structure and balance capacity growth decisions against market demand. Consolidation in the other major aviation markets has proven beneficial to both balancing supply and demand, as well as unlocking great cost-efficiency opportunities.
Progress will require proactive management of pan-Asian government affairs, regulatory and anti-trust frameworks. Successful solutions will involve consolidation through M&A activity and/or liquidations of competitors as well as deepening international partnerships through increasingly sophisticated joint venture frameworks.
Structural changes will move slowly, yet consumer expectations will evolve at speed and continue to increase in scope.
Dynamic airlines are: