epa04907092 (FILE) Malaysia Airline aircrafts are parked at the Kuala Lumpur International Airport (KLIA) in Sepang outside Kuala Lumpur, Malaysia, 20 July 2015. Malaysia Airlines Berhad became the new owner of the national carrier and received its Air Operator Certificate on 01 September 2015. EPA/FAZRY ISMAIL
KUALA LUMPUR: After a couple of tragedies the year before, 2015 has not been a fantastic year either for the aviation industry despite a plus point on the fuel part.
So a cautious note for airlines, “please buckle up and brace for more turbulence in 2016 as the weather is still not too promising”.
According to the Centre for Aviation (CAPA), the domestic market should experience faster growth than 2015 but yields will be under pressure and will have an impact on profitability.
This year’s growth, said to be at about 2%, has been the slowest since 2006, it added.
Meanwhile, 2015 had seen many developments affecting Malaysian carriers and the aviation sector.
While the lower oil price, on the one hand, helped with cheaper fuel but a lower ringgit had translated into foreign exchange losses.
The airline tragedies in 2014, that of Malaysia Airlines’ MH370 and MH17 as well as AirAsia’s QZ8501 which crashed into the Java Sea, too has had a lasting impact on global travellers and caused much nervousness in the market.
However, Asian airlines have improved their safety records in 2015.
The year shed some light on the baffling MH370 incident when on July 29, a 2.7-metre-long wing flap or flaperon of a Boeing 777 was found on Reunion Island in the Indian Ocean. The only Boeing aircraft reported lost in the Indian Ocean was flight MH370.
Transport Minister Datuk Seri Liow Tiong Lai had announced that until October, the Government had spent US$53.81mil (RM231.5mil) on operations to locate MH370 and US$2.99mil (RM12.9mil) on the recovery mission for the MH17 tragedy.
Following the series of aviation misfortune, there had been greater cooperation among industry stakeholders globally to make flying ever safer.
The International Air Transport Association and the International Civil Aviation Organisation had begun to “test drive” a proposed tracking standard and recommended practices to improve airlines tracking capabilities.
Malaysia Airlines, on the other hand, implemented SITA OnAir’s Aircom FlightTracker service to assess a new “15 minutes minimum” surveillance interval.
Since its transition, Malaysia Airlines saw good and sustained progress despite macroeconomic headwinds and adverse currency exchange rates.
The national carrier successfully formed a new legal entity on Sept 1, 2015 with 1,165 staff exiting the company - of which, 466 gained employment, 650 decided to set up personal businesses and 49 opted to retire.
Given its ongoing turnaround plan and rebranding exercise, Malaysia Airlines is expected to continue undergoing consolidation.
Among its significant milestone this year was the mammoth code-share deal with Dubai-based Emirates, the world’s biggest international carrier, allowing it to sell tickets to more long-haul destinations while scrapping unprofitable routes.
The accord covers more than 90 locations in the United States, Europe, the Middle East and Africa while Malaysia Airlines will drop its own direct flights to Paris and Amsterdam next year.
As for AirAsia, after a series of headwinds that affected its operations, the low cost airline is still positive over the groups fundamentals, against the backdrop of low jet fuel price, as well as, increased demand by Chinese travellers since May 2015.
During the year, the airline not only saw its share price dip to a record low of below a ringgit in August on financial worries but had also suffered a wider foreign exchange loss of RM436mil in the third quarter 2015.
Its share price has rebounded since, with a better outlook as fundamental challenges slowly dissipated.
On the airport side, in terms of passenger movement, Malaysia Airports Holdings Bhd
(MAHB) said its airport network had handled 101.7 million passengers up to November, a 4.9% growth, from the same period last year.
The airport operator had indicated its optimism in capturing a fair share of the travellers market in 2016, boosted by the government’s announcement that it will issue e-visa to China and India.
The return of British Airways last May, All Nippon Airways in September and that of Air China in October, after a hiatus of three years, provided the dynamism required by the aviation industry.
MAHB had also made good on the financial side, seeing a 43.9% growth in revenue for the first nine months to RM2.83bil, following improved results from the airport operations segment, mainly contributed by its Turkish operations in Istanbul Sabiha Gken.
Traffic at Istanbul Sabiha Gokcen remains buoyant and is expected to end the year with a high double-digit growth while domestically, KLIA2 had seen growth of 7.0% since its opening in May 2014.
In 2015, MAHB too had some fair share of interesting affair, when it was served a letter of demand by AirAsia for RM409mil, being the sum of “the losses and damages the airline suffered in operating from KLIA2”.
Another was when the airport operator had to put up a notice to locate the owners of three abandoned cargo aircraft, parked at KLIA since mid-2010.
As for the aviation industry moving forward, analysts are of the view that 2016 will continue to see foreign exchange volatility and non-improving yields dampening profits.
Shukor Yusof, founder of aviation consultancy firm Endau Analytics, said the overall market would continue to be firm in terms of volume for the first half of 2016 but this would not always translate into yields.
“It is likely that intense competition and over capacity will result in more yield erosion financially for budget airlines such as AirAsia, Firefly and Malindo,” he said.
Currency values have always had an influence on the airline sector and more specifically, their US dollar-denominated costs such as fuel, aircraft and borrowed money.
Judging from how local airlines ended 2015, Shukor was not upbeat on their performance for next year as the combination of foreign exchange volatility and cheaper oil prices have caused many financially weak carriers to struggle.
While most airlines have generally benefited from lower oil prices, he said yields have not improved due to over-capacity and possibly the use of wrong aircraft types.
“Yes, cheaper jet fuel price would remain for the near future but if airlines have placed hedges at higher levels, they will not see the benefit.
“We expect to see more downside in oil prices whereby the first half of 2016 is likely to range between US$30 and US$40 per barrel,” he said.
Jet fuel typically accounts for 40%-55% of an airline’s operating expenses.
On AirAsia, he said the low-cost carrier would continue to be bogged down by structural and financial woes at least into the first half of 2016.
“However, we might see a decision finally being made by the AirAsia management regarding AirAsia Indonesia and AirAsia X and how to resolve the continuing losses at those airlines,” he said.
AirAsia is going through a tremendous challenge in getting its act together due to high debt and dues owed by its affiliates, as well as, its tainted image after flight QZ8501 crashed into the Java Sea on Dec 28, 2014.
On new airlines, Shukor said the market should keep an eye on newly established carriers such as Rayani Air and flymojo and how they evolve.
flymojo, which will be based in Johor Baru and Kota Kinabalu, has yet to receive an air operator’s certificate, refraining it from conducting commercial air transport operations.
“flymojo was supposed to have started in October 2015, so will it ever take off?” Shukor questioned.
Meanwhile, syariah-compliant budget airline, Rayani Air, had so far announced that it would fly five routes, namely, Langkawi, Kota Baru, Kuala Lumpur, Kota Kinabalu and Kuching.
Moving forward, Shukor expects overall passenger growth in Asean to increase and hopes to see more developments in regional airlines exploiting the Asean Open Skies.
“However, this appears unlikely as some countries such as Indonesia remain protective of their carriers and markets,” he added. - Bernama
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