Comment
Its all about the management
September 1st 2014
Airline profitability can be elusive even in the best of economic times and the Asia-Pacific is no exception. Read More »
But recent results from the region’s carriers are concerning. They reveal that despite increased passenger numbers and a modest improvement in the air cargo sector, maintaining profitability is proving difficult. As financial results for the first half of this year, and in some cases for full year outcomes, roll out, they make for dismal reading.
There has been some good news - Air New Zealand, Cathay Pacific Airways, Korean Air and a few of the major budget operators have turned in substantial profit performances. But generally, the interim and full year results to June 30 tell a tale of significantly declining profits and, in some cases, widening losses.
In China, the “Big Three” state-owned airlines have issued profit warnings. Thai Airways, the Qantas Group, Virgin Australia, Singapore Airlines, AirAsia X, Jet Airways and Garuda Indonesia are among carriers that have reported disappointing bottom lines with no immediate recovery in sight.
The causes are diverse, depending on individual market conditions. Malaysia Airlines (MAS), already in the red for three years, is in a horrendous situation after two tragic accidents that took hundreds of lives. In Australia, the woes of the Qantas Group, especially its international arm, have been well documented. Its full year loss of US$2.6 billion, is testimony to its situation.
The problems facing Thai Airways International have been exacerbated by the country’s political unrest, but seem to have stabilized since a military coup d’etat in May. Yet there are other factors applying to THAI and many airlines in the region that undermine sustainable profitability. High fuel costs are a constant. Competition is reaching unprecedented levels, particularly from budget operators. Exchange rates are fluctuating, bringing both losses or gains, depending on where an airline is based.
Capacity is increasing at a faster pace than traffic growth, a clear signal, say analysts, that the current fleet expansion needs a re-think.
None of these challenges are new. Many of them, especially fuel costs, are beyond the control of airlines. In the end, it is the ability of management at the airlines to deal with these challenges. Unfortunately, some airlines in our region are failing to meet this challenge.
