Despite the rise of the MSCI (Morgan Stanley Capital International) Asia/Pacific index early this month of four per cent and analysts forecasting outperformance in the next 12 months on the back of strong global recovery, Asian airlines index has yet to outperform last year's 15 per cent increase.

The airlines forecast for strong fourth quarter profit and those airlines with high cargo exposure are high risk rather than carriers that focus on premium passengers. Strong recovery in the year in the nine-month period has been down to retail re-stocking which with overcapacity and air-to-ocean freight rates widening is unlikely to be unsustained into 2011, said Morgan Stanley.

"As the global economy recovers and premium travel returns, we believe the well-capitalised airlines will be competitively positioned to participate in the recovery phase of the airline industry cycle," they said in a MarketWatch report.

Premium travel and its yield will be the key revenue driver with those lines such as Singapore Airlines and Hong Kong's Cathay Pacific tracking local markets underperforming compared to Korean Air Lines and Taiwan's China Airlines, said Morgan Stanley who has downgraded Korean Air stock.

Both Yuanta analyst Stone Line and Morgan Stanley has downgraded China Airlines and EVA Airways stock despite significant earnings strength for China Airlines its continued trajectory is unlikely. Such factors as lowering direct-flight ticket prices, oil prices fragility and "one-off" items such as rising demand from China's Shanghai Expo will dampen the Taiwan carrier's growth. 

 Source: schednet