AIRBUS AIRCRAFT AWAITING DELIVERY AT TOULOUSE BLAGNAC. PIC/SHUKOR YUSOF
Aviation

Airlines face challenging 2019: IATA

In its latest Airlines Financial Monitor, the International Air Transport Association (IATA) warned that airlines worldwide face uncertainty particularly from volatility in oil prices and the global economy.

Read the entire report here.

In terms of the energy market, IATA said investors were unsure if this is “good or bad for airline earnings”. The trade association, comprising 290 (mostly flag) carriers, noted there was week-to-week swing in the market.

Cuts by some OPEC countries and sanctions on Venezuela have pushed crude prices higher.

The recent collapse of Flybmi, a regional carrier based in the UK, is a sign that airlines are sometimes at the mercy of external factors that are beyond their control.

For Flybmi, the uncertainty facing Britain after Brexit added to its woes.

European airlines have suffered more financial problems in recent years compared to US and Asian carriers. In the last two years Britain’s Monarch and Germany’s Germania filed for insolvency.

Air Berlin and Italy’s national airline Alitalia went bust although the Italian government has bailed out the latter.

Other European carriers at risk include low-cost airline Norwegian Air Shuttle and UK regional company Flybe.

Airlines (both legacy and discount carriers) in Asia face similar challenges as those in other parts of the globe but are better positioned to resist economic and financial problems slightly better.

This is because the region is home to the world’s fastest growing aviation market. Passenger numbers in Southeast Asia and East Asia are growing spectacularly, on average between 5% and 7%, but in some markets almost reaching double-digits.

But rises in the number of passengers and airline movements do not necessarily equate to profit, as many Asian LCCs are discovering.

In recent months several LCCs in Southeast Asia were in the news due to their weak financial position.

Thai budget carrier Nok Air is in the midst of raising cash after its shareholders’ equity slipped into negative territory. Since its inception in 2004 profitability has been elusive for Nok Air.

Fortunately for the carrier, it is 22%-owned by flag carrier Thai Airways International (THAI), which has said it would infuse capital into Nok Air. THAI is a sovereign-guaranteed company.

But unless Nok Air starts to quickly improve on its numbers and compete more aggressively against the likes of Thai AirAsia and Thai Lion Air, it risks encountering fresh financial problems in the near term.

Most budget airlines in Indonesia, the largest aviation market in Southeast Asia, also face a daunting 2019, with the exception of Lion Air and Citilink.

Privately-owned Lion Air controls over 60% of Indonesia’s domestic market. It operates a fleet of over 110 planes, with an order for Airbus and Boeing aircraft that exceeds over 250.

However, Lion Air’s subsidiary in Malaysia, Malindo Air, is facing very stiff competition from the region’s top LCC – AirAsia.

Malindo Air started in Malaysia just six years ago but has yet to be profitable. In the financial year 2017 the airline lost almost MYR500 million.

According to media reports Malindo has chalked up total losses of MYR1.06 billion (USD260 million) since 2017. The airline’s CEO has set a target for the company to make its first profit within three years.

The airline – initially a joint venture between Lion Air and Malaysia’s National Aerospace & Defence Industries (NADI) – has a network of 57 destinations across 16 countries. Following a reduction in equity by NADI (from 51% to 5%) in 2017, Malindo is now controlled by Sky One Investors Sdn Bhd and Indonesia’s PT Lion Group.

However, in Malaysia – its home base – the LCC has a market share of just 8.2% of international passenger movements in 2017, according to figures released by Malaysia Airports Holdings Berhad (MAHB).

By comparison, airlines under the AirAsia brand name (including those in Malaysia, Indonesia and Thailand as well as its long-haul arm AirAsia X), have almost a 50% control of international passengers.

Firefly ATR72 Future Is Up @ SZB
WHAT DOES THE FUTURE HOLD FOR FIREFLY? PIC/SHUKOR YUSOF

Another Malaysian LCC, Firefly, is facing dire financial difficulties. The government-owned discount turboprop airline is reportedly losing MYR15 million to MYR20 million a month following the suspension of its flights to and from Singapore starting 1 Dec 2018.

A dispute between Malaysia and Singapore over airspace is severely hurting Firefly, which had already registered over MYR360 million in losses between FY2013 and FY2017.

How much longer Firefly can withstand the losses, if the bilateral spat continues, remains to be seen.

Elsewhere there are some positive signs. Cathay Pacific Airways is expecting a HKD2.3 billion (USD293 million) profit for FY2018 as a result of stronger cargo business and cost cuts from dismissing some staff.

Cathay’s rival Singapore Airlines (SIA) saw a 27% decline in its 3Q (Oct-Dec 2018) profit but beat expectations as revenue growth offset higher fuel prices. SIA posted slightly over USD200 million during this period.

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