Asian aviation must up its game

WHEN it comes to global aviation, perhaps the biggest surprise is the fact that the industry has not plunged into another crisis this year. Despite stubbornly high fuel prices, falling yields, cut-throat competition, an anaemic global economy and unpredictable weather, the aviation industry is expected to post net profits of US$4.1 billion in 2012, according to estimates put out by the industry's governing body, the International Air Transport Association (Iata).

But this is also an industry undergoing massive changes, not least of which is a wave of consolidations and bilateral alliances. And much of the change is happening in the Asia Pacific region, though triggered by carriers from other regions such as the Middle East. Cash-rich Etihad and Emirates have been tying up with carriers like Virgin Australia and Qantas. Singapore Airlines, not to be outdone in its own backyard, has also joined the game with its A$105 million (S$134 million) purchase of a 10 per cent stake in Virgin Australia. Others have also been ramping up their presence around the region. After a long absence, Air Canada is starting flights to destinations such as Beijing, Tokyo and Seoul. Lufthansa, Air France-KLM, Swiss, Finnair, SAS, British Airways and other European carriers have also taken a more active interest in this region.

What is happening in Asia is an extension of what's happening globally. Over in Europe, Etihad is going into a partnership with Air France-KLM. Meanwhile, Doha-based Qatar Airways will become the 13th member of oneworld alliance, making it the first of the Middle East's Big Three to join a global airline alliance. Across the Atlantic, Delta is reportedly poised to buy out Singapore Airlines' 49 per cent stake in Virgin Atlantic - a move which could see Virgin increase capacity in Asia.

But conspicuously absent from all this corporate action are Asian carriers. Owned or controlled by governments, hindered by restrictive bilaterals and blocked by protected markets, the chances of real and meaningful intra-Asian airline alliances look remote. Despite all the lofty talk in Asean about open skies and the need to cooperate, no real progress has been made on the multilateral level yet. With most carriers still profitable, while others like Malaysia Airlines are starting to recover, the incentive for alliances or consolidation remains low in a region where nationalist sentiment trumps commercial pragmatism.

Yet at every regional meeting, leaders have never failed to mention the need to restructure for profitability, upgrade infrastructure, switch to sustainable fuels, and become more customer-centric. This will remain mere rhetoric unless the industry, governments and airline partners play to the reality on the ground, and meet the competition from a continent away.