By Myra P. Saefong
Asian airlines will likely continue to see a stronger recovery
than their global peers, as passenger and cargo volumes grow,
unabated by concerns over economic slowdowns in Europe and the
United States.
Earnings recovery for Asian airlines started in September 2009,
but "hiccups in the forms of volcanic-ash-cloud disruptions in
Iceland and over much of Europe, concerns about a renewed economic
downturn in Europe, and a stronger U.S. dollar have revived doubts
over the sustainability of the recovery," analysts led by Jim Wong
at Nomura said in a research note.
That could present a "buying opportunity" for investors in the
Asian airlines sector, given that "the major earnings driver of
most of [those carriers] is Asia-based demand," they said.
But traders Tuesday didn't seem so convinced. In late morning
trading, shares of the region's airlines were mixed, reflecting the
broader moves in the region.
Shares of All Nippon Airways Co. (ALNPF) added 2.5% in Tokyo,
outperforming the benchmark Nikkei Stock Average, which fell 0.2%.
Morgan Stanley raised its rating on the carrier to overweight from
equal-weight Tuesday and lifted its outlook to reflect a
"better-than-expected upturn in passenger demand and higher
yields."
In Hong Kong, Cathay Pacific Airways Ltd. (CPCAF) rose 1%, but
China Southern Airlines Co. (ZNH) shed 2%, and China Eastern
Airlines Corp. (CEA)(CEA) slipped 1.2%, as the Hang Seng fell 0.1%.
Trading in Shanghai was closed for a holiday.
In Sydney, shares of Virgin Blue Holdings Ltd. (VBA.AU) added
1.6%, while those of Qantas Airways Ltd. (QUBSF) were down 1.2%,
with the S&P/ASX 200 losing 0.3%.
In Seoul, Korean Air Lines Co. (KRNRF) fell 0.5%, and Asiana
Airlines (ASAIF) was down 0.1%, with the Kospi up 0.2%.
Asia's potential
Growth in both passenger and cargo demand for Asia's airlines
have been evident in recent months.
"With Asian airlines under our coverage having reported
significant earnings recoveries in [the second half of 2009 and/or
the first quarter of 2010] results, the recovery in the Asian
airline industry should now be well recognized in the market,"
Nomura analysts said.
"Passenger and cargo traffic volumes for most Asian airlines
have recovered to positive growth since September 2009, and have
been able to sustain solid positive volume growth since," they
said.
And that growth may continue for some time to come.
On a global scale, airlines are expected to post a profit of
$2.5 billion in 2010, according to a report released last week by
the International Air Transport Association.
While the IATA predicts that European carriers will see a loss
of $2.8 billion this year, the Asian region's carriers are likely
to "deliver the largest profit" at $2.2 billion.
"Asia-Pacific carriers continue to benefit from strong regional
growth," the IATA said, adding that the Asian economy, excluding
Japan, is expected to grow by 7% this year, with China outpacing
that with a forecasted 9.9% expansion.
Exposure caution
Already, "Asian airlines seem to have put the worst of the
global crisis behind them ... and continue to see sustainable
recovery into the foreseeable future," said analysts at Nomura.
However, they cautioned investors that "different airlines
provide different exposure."
Taiwanese carriers, particularly EVA Airways Corp., were most
exposed to the ongoing stronger cargo recovery, while Singapore
Airlines Ltd. (SINGY) was more geared toward an international
premium passenger rebound, and China Southern Airlines was more
exposed to a sustained domestic revival.
"Air cargo demand is more dependent on a recovery in the U.S.
and Europe, while air passenger demand is more dependent on a
recovery in domestic economies," analysts at Nomura said.
And "despite the stronger recovery for air cargo vis-Ã -vis air
passengers, our expectations of a sustained recovery in air
passenger demand is still higher than that of a sustained recovery
in air cargo demand," they said.
But a number of players, including Singapore Airlines, "advocate
that the strong recovery in air cargo will be sustained for at
least six to nine months," they said.