Silver lining for Asian carriers


  • Business
  • Friday, 10 Jan 2003

BY B.K. SIDHU

THE global airline industry looks like heading into troubled skies this year with a US-Iraq war being unavoidable at this juncture, but regional airlines should do fairly well, with intra-Asian travel picking up momentum.  

The war will certainly affect investments and tourism. Oil prices will surge. Carriers will have to fly longer routes, and that will push costs higher.  

But the impact of war will be felt more by US and European, rather than Asian carriers, experts say.  

As it is, most US carriers are fighting for survival. Their capital structure needs rebuilding, and that makes it difficult for them to expand. Such a scenario leaves a void that Asian carriers can fill.  

And in Europe, a senior analyst from Singapore said, the scenario was also heading towards the path the US carriers have flown into.  

Profit warnings are being sounded as European carriers facing difficulty in filling up planes, resort to offering discounts, which in effect means pushing yields down.  

As for Asia, the senior analyst said the Bali incident in October did not hurt the airline industry that much; and war could well turn out to be “more positive than negative for regional airlines.”  

Frost & Sullivan research manager Leow Hock Bee said the issue was whether the war, if it were to break out, would be brief or prolonged. If it were brief, the situation would return to normalcy within two quarters.  

If it drags – and terrorist activities heighten in retaliation – the global air industry may face chaos once again.  

“It is a challenge for regional carriers to manage their hedge policy on aviation fuel,'' Leow said.  

The International Association of Air Travel (IATA) has forecast total passenger traffic to grow by 6.4% in 2003, and on average 3.3% per year in 2002-2006.  

From 2002 to 2006, Intra-Asian trade is expected to grow by 5.3%. China is seen topping the international passenger traffic growth market with 9.6% growth; followed by the UAE at 6.5%; Turkey at 6%; Thailand at 5.8% and Russia at 5.7%.  

Although passenger growth is expected to be better this year, cargo traffic has picked up quite substantially since last year and is expected to grow even stronger this year.  

Even in the event of war, the senior analyst was confident intra-Asian air travel would be sustainable.  

According to Air Asia Sdn Bhd chief executive officer Tony Fernandes, intra-Asia air travel will grow because there was a huge untapped market in Asia, as there was greater propensity for people to fly.  

China and India are two big markets that offer a lot of potential to regional carriers such as Malaysia Airlines, Singapore Airlines (SIA) and Cathay Pacific (CX).  

This year, MAS is expected to mount additional flights to several destinations within China since it has managed to obtain landing rights to some destinations earlier than expected.  

Although there may be concerns over the impact of a war, analysts remained bullish about the prospects this year for both MAS and Air Asia.  

They see 2003 as a turnaround year for MAS after five consecutive years of losses. MAS said it would report RM94mil in pre-tax profit for the financial year (FY) ended March 31, but analysts expect higher profits coming in from extraordinary gains.  

The focus for MAS is to expand into lucrative sectors with a view to increasing yields. MAS is aiming for its yields to rise to 5 US cents in the near future from 4.4 US cents. 

GK Goh Research expects MAS yields to be in the 17-sen to 18-sen (4.4 to 4.7 US cents) range for FY2004, and traffic to grow by 4%-6%, which is in line with Malaysia's GDP growth.  

Air Asia – the only low-cost carrier in Asia – will continue to expand within the country, as well as mount additional flights to existing destinations, Fernandes said.  

He said Air Asia recorded a 500% growth rate last year, flying 1.1 million passengers, compared with 280,000 in 2001. This year's target is to carry 2.9 million passengers.  

“It is a completely new market (that we are tapping into). We are a low-cost carrier,'' he said. There is a now a choice for Malaysians, like opting for three-star hotels or five-star hotels. 

Alban Lee, country manager, Malaysia, for Emirates Airlines is equally bullish.  

“War aside, the outlook looks very good'' for the Middle Eastern airline, he said. 

He sees a strong market for Emirates in Malaysia and globally this year, and projected a 20% growth in revenue for the local office. 

Although the Asian carriers remain more attractive than their European and US counterparts, this is not reflected in their share price, the senior analyst noted. 

MAS closed at RM3.36 yesterday, SIA at S$ 10.10, and CX at HK$11.10. 

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