Ex-Cathay chief's Seabury consultancy sees 2009 as good as 2008

THIS year should be no worse than last with the economy picking up in 2010, according to David Turnbull, former CEO of Cathay Pacific Airways, and today's chairman of Seabury Asia, a Hong Kong consultancy covering aviation companies

We do not foresee that 2009 is going to be much better or worse than 2008 - it will be more or less the same, said Mr Turnbull in an interview with aircargoworld of Washington, DC. However, come 2010-2012, things will pick up again.

But aircraft orders need to be cancelled or delayed, and/or retirements and temporary parking need to go up, and/or conversions need to be down significantly from earlier years, and/or an increased overcapacity situation will occur putting downward pressure on yields and load factors.

Mr Turnbull also said this differs from other downturns because "we are not forecasting a particular year with a huge upturn, something that other recession periods typically show. We also do not foresee a return to the traditional seven per cent annual air cargo growth in the coming years, as we have been used to from 2002-2007.

As such, we may be a little more pessimistic than some others, he said.

Mr Turnbull approves of state bailouts. The actions of national and regional governments to thaw frozen credit markets, re-ignite investor confidence and stimulate consumer demand are essential to minimising the impact of the current downturn. It is important that these efforts be asserted across all affected regions - virtually all regions of the world - as failure to do so will create headwinds for the other economies, he said.

Asked if there were any shift in the airline/air cargo centre of gravity to the Gulf region, Mr Turnbull said: It is undeniable that Emirates and the hub in Dubai have seen very strong growth in past years. The success of these initiatives, however, still has to be proven in the cargo industry.

When talk turned to the impact of environmentalism, aka, sustainability, Mr Turnbull said: It is likely that the US buying into sustainability as a valid business model element will create a bow wave that requires Asian and developing nation trading partners to move toward adoption of sustainability. In a world where the price of hydrocarbon fuels may be entering upward pressure, sustainability has a more visible economic justification, he said.

We are pretty sure that there will be a CO2 surcharge added to total charges, as the additional carbon tax cost is not insignificant and would really hurt profitability of the airlines if none of it is passed through to customers. Timing is unclear, however, he said.

We already see a shift away from airfreight to ocean shipping as the vehicle for global trade with what we estimate to be nearly three percentage points having occurred between 2002 and 2007. On land, freight railroads in the US, in particular, have been gaining share, he said.

Oil prices of US$70 a barrel are a point at which the impact of fuel costs on modal choice is neutral. The global recession undoubtedly cyclically accelerates those share shift trends, as there is simply less urgency to move most goods and the willingness and ability to pay more for faster shipments is also diminished relative to more robust economic times.

Longer-term, we believe it likely that potentially inexorable fuel price increases will continue to drive share shift toward more fuel - efficient modes of freight transportation than air freight, Mr Turnbull said.

Source: Schednet