News Backgrounder
New figures herald regional slowdown on the horizon
June 1st 2019
Times are tough for many of Southeast Asia’s airlines as they struggle to maintain profitable in the face of specific industry headwinds. Read More » Those on a losing streak include Thai Airways International (THAI) with five of its subsidiaries reporting a combined operating net loss of US$26.2 million for their first quarter, to March 31.
Also in the profit doldrums are flag carriers, Malaysia Airlines and Garuda Indonesia, with the latter facing a government directive to lower its domestic fares by up to 20%. Key factors eroding revenue are rising fuel prices, currency declines and intense competition, both airlines report.
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THAI said the global slowdown in economic growth and increased competition from regional, mostly LCC, rivals following International Civil Aviation Organisation’s removal of a red safety flag for the country’s airlines were having the biggest impact on earnings. Airport capacity limits, trade wars and “other crises” also were risk factors in 2019, the airline said.
THAI was hardly alone in reporting reduced revenue. Nok Airlines recorded a $12.4 million net loss for the same three months. Bangkok Airways remained profitable, but experienced a 29% drop in profit for the quarter, with net income of $16 million. Six of Malaysia’s seven carriers were unprofitable in 2018 and the seventh, AirAsia, generated its smallest operating profit in four years.
Passenger traffic expansion at Malaysia’s Kuala Lumpur International Airport has slowed from 11.2% in 2017 to 2.4% in 2018. Growth in the overall Malaysian market was 10% in 2017, but only 3% in 2018. Analysts collectively said expansion would likely sit in the low to middle digits this year with profits under pressure and overcapacity a persistent concern.
The Garuda Indonesia Group posted a $19.7 million profit in the three months to March 31, a huge improvement on the $64.3 million loss for the same period a year ago. Its president, Ari Askhara, has been under constant political pressure to further cut domestic fares. Garuda is 60% government owned and the domestic air passenger market makes up 75% of total Indonesian air traffic demand, Nikkei Asian Review reports.
| 'The current trade tensions and continuing erosion in business confidence could undermine growth prospects going forward, even though demand for international air travel is expected to remain relatively firm. The region’s airlines are proactively exploring opportunities for growth, while carefully managing capacity expansion and implementing measures to contain costs' |
| Association of Asia-Pacific Airlines April 2019 |
Collectively, Asia-Pacific airlines recorded a 3.7% increase in international passengers carried, to 31.2 million in April, with promotional airfare campaigns lending support to travel markets.
Measured in revenue passenger kilometres (RPK), demand grew by 3.5%, which reflected relative strength in regional travel markets. After accounting for a 4.1% increase in available seat capacity, the average international passenger load factor was 0.5 percentage points lower, to 80.8% for the month. Air cargo demand, measured in freight tonne kilometres (FTK), declined by a steep 9.1% year-on-year for the month as new export orders continued to decline. The AAPA said the fall in air shipment volumes coincided with production declines in the region’s technology equipment sectors.
“These traffic trends paint a mixed picture,” said AAPA director general, Andrew Herdman. “The first four months of the year saw a 4.9% increase in passengers carried by the region’s airlines, to 125 million, whereas air cargo experienced a 6.3% decline in demand for the same period.
“Growth remained relatively encouraging in air passenger markets, with sustained demand in regional economies. Since the final quarter of 2018 air cargo volumes have recorded declines as unresolved disputes and the imposition of trade tariffs have led to a marked slowdown in international trade flows.”
