Price war among airlines intensifying, lower fares seen

PETALING JAYA: Price competition in the aviation sector is set to intensify moving forward, according to CIMB Research.

The research house believes that this could happen from the fourth quarter onwards.

“There are clear signs that competition will intensify in 4Q16 and 2017. The new Malaysia Airlines Bhd chief executive officer Peter Bellew recently said that MAS will have to address chronically-low load factors which averaged below 70%,” CIMB Research said.

“It will soon price 15%-20% of its seat inventory at lower fares, in an effort to wrest back market share.

MAS will also introduce six to seven new destinations in 2017, possibly from klia2 and Kota Kinabalu to China,” the research house added.

Meanwhile, Malindo will also be adding more capacity and CIMB expects more aircraft to be delivered into its fleet for the rest of the year.

“Malindo, which started the year with the express goal of expanding by six to 10 aircraft, finally added a couple of new planes. One 738 arrived in late June, and two more were delivered in July, taking its total jet fleet from 16 to 19. It also took delivery of two new ATRs in July, raising its turboprop fleet from 11 to 13-strong,” it said.

The research house noted that the aviation industry is cyclical, with it swinging from decreasing and rising competition.

It highlighted that in the year 2013, the environment was intense with the entry of Malindo and with the-then management of MAS flooding the market with capacity.

“This was followed by a competitive truce during 2014, before conditions improved significantly from August 2015 post-MAS restructuring.

“But the pendulum is in the early stages of a swing in the other direction,” CIMB Research noted.

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