Asian airlines on fast track to recovery

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By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) -- International passenger traffic has climbed over the past few months, and analysts say Asia's airlines are likely on a fast track to recovery as fare prices edge higher and as China readies for a spike in tourism fueled by the Shanghai World Expo.

"Positive traffic growth has now been recorded for the past five months, and although traffic levels still have further to go to reach 2008 highs, the rate of growth is accelerating," Mark Williams and Michael Newbold, analysts at the Royal Bank of Scotland, wrote in a recent research note.

January global passenger demand was up 6.4%, with the Asia-Pacific region experiencing a 6.5% rise, according to data from the International Air Transport Association.

Similarly, international passenger traffic was up 8.6% from its low in February 2009, with 31% of that improvement realized by carriers in the Asia-Pacific region, IATA said.

Asia's strength reflects the region's "faster economic recovery compared with the rest of the world," Williams and Newbold said.

That's a "good sign" for the international operations of Australia's Qantas Airways Ltd. and Virgin Blue Holdings Ltd., which will likely see "solid growth" in the calendar year 2010, they said.

In Asia's afternoon trading Wednesday, shares of the region's major airlines were mixed. Shares of Qantas Airways /quotes/comstock/22x!e:qan (AU:QAN 2.45, -0.04, -1.61%) /quotes/comstock/11i!qubsf (QUBSF 2.17, +0.02, +0.93%) were up 1.1%, and Virgin Blue Holdings /quotes/comstock/22x!e:vba (AU:VBA 0.32, 0.00, 0.00%) /quotes/comstock/11i!vbhlf (VBHLF 0.29, +0.04, +16.00%) added 0.7% in Sydney, even as the S&P/ASX 200, the broader benchmark index, fell 0.2%.

But All Nippon Airways Co. (JP:9202 296.00, -4.00, -1.33%) /quotes/comstock/11i!alnpf (ALNPF 2.96, 0.00, 0.00%) fell 0.4% in Tokyo, and in Hong Kong, Cathay Pacific Airways Ltd. /quotes/comstock/22h!e:293 (HK:293 17.14, 0.00, 0.00%) /quotes/comstock/11i!cpcaf (CPCAF 2.05, +0.11, +5.67%) added 1.4% ahead of its full year 2009 results due after the market close.

Also in Hong Kong, China Southern Airlines Co. /quotes/comstock/22h!e:1055 (HK:1055 3.77, 0.00, 0.00%) /quotes/comstock/11i!chkif (CHKIF 0.48, +0.04, +9.09%) added 3.5%, but China Eastern Airlines Corp. /quotes/comstock/22h!e:670 (HK:670 4.20, 0.00, 0.00%) /quotes/comstock/11i!cheaf (CHEAF 0.53, +0.04, +8.16%) /quotes/comstock/13*!cea/quotes/nls/cea (CEA 53.70, +0.37, +0.69%) fell 0.4%. In Shanghai, shares of China Southern /quotes/comstock/28c!e:600029 (CN:600029 7.39, 0.00, 0.00%) were 1.9% lower, and China Eastern /quotes/comstock/28c!e:600115 (CN:600115 8.05, 0.00, 0.00%) fell 2.3%.

Most benchmarks in the region traded lower. China's Shanghai Composite Index, Hong Kong's Hang Seng Index and Japan's Nikkei 225 each lost 0.1%. South Korea's Kospi slipped 0.3%.

Fare and freight

Growth in international passenger traffic is set to combine with rising air fares and a rebound in air-freight demand to further fuel recovery expectations for Asia's airlines.

"With growth in the Asia-Pacific region strong, we expect local airlines to outperform," Williams and Newbold said, as they retained their buy ratings on Qantas and Virgin Blue.

Air-fare prices are also on a "recovery path," they said, pointing out that IATA statistics suggest that the average economy fares are up 10% on lows witnessed in mid-2009, while premium fares have also seen "significant recovery."

And in 2009, intra-Asia-Pacific travel eclipsed the number of travelers in North America as the world's largest aviation market, according to IATA.