"A key story in the Asia-Pacific region for 2006 was the capacity restraint of the full-service airlines, resulting in higher load factors. But there was a price. They lost market share, particularly to European and Middle East carriers, as well as the fast-growing Asia-Pacific LCCs," said executive chairman Peter Harbison.

The report says Asia is a two-speed market, with flag carriers growing much more slowly than other airlines, including carriers in India and China and the low-cost sector.

Association of Asia-Pacific Airlines carriers increased their aggregate capacity by only 0.9 per cent last year. In the Asia-Pacific, LCC capacity surged 55 per cent year on year in 2006 to account for 8.9 per cent of the regional total and close to 11 per cent in last year's fourth quarter.

"Based on recent LCC growth rates and aircraft orders, their share could reach 20 per cent by the end of this decade, with much higher levels of penetration in such markets as India, Thailand, Australia, Malaysia and Indonesia.

"The LCC market share in Asia was less than 1 per cent in 2001. Such an outcome would eclipse the pace of LCC development in every other geographic region, albeit a delayed development in this region," said Harbison.

In the current aviation environment of unprecedented order backlogs, aircraft production slots are an equally precious commodity. Many aircraft types are essentially sold out for the next two-three years after record aircraft orders in 2005-06.

"Thanks to the past two years, both manufacturers are sitting on enormous production backlogs. While good news for the manufacturers, this is not helping airlines wishing to grow or be new entrants. But several carriers in emerging markets made big orders and now occupy valuable aircraft production slots. They may be able to capitalise them by mortgaging or selling them," said Harbison.

Global aircraft orders are predicted to remain fairly buoyant this year, said the report, led by major North American and European carriers and continued buoyancy in Asia and the Middle East, but overall order levels will not reach the 2005-06 peak.

The report said Asian airlines had planned deliveries over the next five years representing almost 59 per cent of the current fleet, well ahead of the global average of 31 per cent and despite the fact that in most cases, Asian airlines possessed younger fleets than the global average.

The high level of growth will continue to drive substantial demand for airline employees and apply pressure on training and schedules across the Asia-Pacific and Middle East this year. The centre estimates manpower requirements will result in 154,000 new employees across the Asia-Pacific and the Middle East over the next five to seven years, including 10,200 pilots, 36,400 cabin crew, 26,800 maintenance engineers and 38,500 ground handlers.

"Staff shortages and the likely consequent pressure on wage levels will force some airlines to reassess their options for expansion. For example, it may be more feasible for airlines to develop alliances or to outsource certain functions rather than pursue acquisition-led fleet growth," Harbison said.