Releasing its annual report on the regional outlook for aviation and tourism, the Centre for Asia Pacific Aviation (CAPA) predicted a more subdued, but still robust performance for airlines and airports this year.

The CAPA estimates airlines in Asia and the Middle East achieved a record $3 billion profit in 2004, including $750 million from Chinese airlines, while traffic grew more than 20 percent. This compares with aggregate losses of $6-8 billion in the United States and $500 million in Europe.

"For Asia Pacific airlines, 2004 was an oasis in a desert of global bad news," CAPA director Peter Harbison said Monday.

"While operators in Europe and North America licked their wounds, the region's carriers moved rapidly from recovery to robust growth and profitability. That growth should consolidate in 2005, barring further upsets, and establish the Asia Pacific as a key target for major investment in service expansion and new operations," he added.

However, even for the Asian airlines, the prospect of high growth is overshadowed by likely manpower shortages and a further depletion of yields, raising the potential for a profitless or less profitable volume scenario for some.

The CAPA believes that the outstanding profit levels of 2004 are unlikely to be repeated in 2005, although results should be positive again this year.

The report noted that 2004 was a watershed year for liberalization in the aviation sector in Asia Pacific. The year started with the signing of China's first 'open skies' agreement with Thailand in January and ended with the multilateral passenger "open skies" agreement between Singapore, Thailand and Brunei, which will act as the platform for the ASEAN multilateral 'open skies' agreement due to be implemented by 2008.

Throughout the year, significant new liberal agreements were reached between major trading partners within and outside the Asia Pacific region.

"There is no reason why this pace should not continue and probably accelerate in 2005, with far reaching implications for the region's airlines and airports. But 2004 will be remembered as the year when the new era began," Harbison said.

As liberalization sweeps through the region, traffic growth should be impressive, with double figure increases again commonplace, the report said.

The entry of new airlines in regional markets and expansion of access rights on long haul routes will stimulate the growth, yet it will also dilute profitability.

This year the focus of start-up airlines is expected to shift from Southeast Asia to North and Southwest Asia.

The expected growth in new operators is highly significant, as it reflects the general buoyancy of the market, optimism about the aviation sector's prospects and a willingness by investors to capitalize on the robust outlook in Asia, Harbison said.

China and India, in particular, are expected to take up where Southeast Asia left off in 2004. Of the 26 newcomers planning launches in 2005, 14 will come from Greater China and 5 from India/Pakistan. This contrasts with 2004 when half of the 13 start-ups were based in Southeast Asia, especially Singapore.

Meanwhile, providing adequate airport infrastructure to meet the needs of rapid traffic growth is an ongoing priority for governments this year. While SARS provided breathing space for some congested airports, notably Bangkok and Guangzhou in 2003, the recovery and strong subsequent growth has put pressure firmly back on capacity provision.

Total passenger traffic surged by around 20 percent at Asia Pacific and Middle East airports in 2004, including a 20-25 percent increase in international passengers.

Capital expenditure rose sharply last year to $31.1 billion.

This year, privatization efforts through the region could resume. Delhi and Mumbai airports in India will be first on the block in the first half of 2005, and could be followed by Chennai and Kolkata. India should also start the construction of two Greenfield airports in the southern cities of Bangalore and Hyderabad later this year.

China will also provide opportunities for foreign investment in 2005 following the completion of the transfer of ownership and management of 90 airports across the country last summer.

Securing private funding support for key airport projects will be a key focus of the Chinese government this year, Harbison predicted.

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