SE Asian airlines seen slowing down this year

MANILA, Philippines - Aviation think tank Centre for Asia Pacific Aviation (CAPA) sees slower growth for the airline industry in Southeast Asia, including the Philippines, this year even though the region would remain the fastest growing emerging market.

In its latest aviation analysis titled “Southeast Asia – LCCs (low cost carriers) still dominate the agenda as flag carriers restructure,” CAPA said Southeast Asia would be both a challenging and promising market this year.

 “2015 will mark the second consecutive year of slower growth and potentially the second consecutive year when most airlines ended in the red. But improving market conditions, lower fuel prices and restructuring efforts should at least reduce the losses, migrate to profit and allow new growth,” it said. 

According to CAPA, Southeast Asia has emerged over the past decade as one of the world’s fastest growing emerging markets, capturing the attention of global suppliers.

 “The rapid growth has primarily been driven by fast expansion of LCCs – both independent groups and subsidiaries of full service groups. Meanwhile, flag carrier growth has stagnated,” it added.

Data showed that LCC capacity in Southeast Asia has jumped eight-fold to nearly 200 million last year from about 25 million seats in 2004 while that of full service carriers increased by 45 percent to 260 million seats from about 180 million seats over the 10-year period.

CAPA said full service carriers in the region including Philippine Airlines Inc. (PAL) of taipan Lucio Tan are now in restructuring mode. 

It pointed out that PAL and Garuda Indonesia have taken a step back from previous ambitions to pursue dramatic but risky expansion in Europe and are now focusing more on partnerships to cover long-haul markets while Singapore Airlines is focusing on increasing its presence in Asia-Pacific using both its full service and low-cost brands instead of pursuing full service long-haul expansion.

On the other hand, Malaysia Airlines and Thai Airways face monumental challenges as they try to right the ship and chart a sustainable future. Both are expected to cut their long-haul network and start to focus more on Asia-Pacific.

 “On top of their strategies for dealing with LCC competition, it is hardly surprising that several flag carriers in the region are now in restructuring mode. All but one or two of Southeast Asia’s flag carriers were unprofitable in 2014 and will likely remain in the red in 2015. Of the four main flag carriers, three have newly appointed CEOs,” CAPA said in its reports.

PAL, for one, has renamed Jaime Bautista as president replacing San Miguel Corp. president and chief operating officer Ramon S. Ang after the Tan Group bought back the shares of the diversified conglomerate in the national flag carrier to the tune of about $1.3 billion in September last year.

“These are all sensible strategies given the rapid growth in Asia. But competition within the region will inevitably continue to intensify, putting further pressure on yields and profitability,” it added.

Likewise, LCCs in Southeast Asia have a fleet of 538 aircraft and have pending orders for 1,186 brand new aircraft. LCC capacity growth also slowed significantly to 13 percent in 2014 from 30 percent in 2013.

“The slowdown in the growth rate over the last year can be viewed as a temporary hiccup. Market conditions were not favorable in 2014 and should improve in 2015,” it said.

Budget carriers led by Cebu Air Inc. (Cebu Pacific) of taipan John Gokongwei, Garuda’s Citilink and Thai Airways’ Nok are expected to undergo modest expansion, with the acquisition of five additional aircraft each this year while AirAsia is planning to grow its A320 fleet by only five aircraft in 2015 after deferring or selling 24 of its original 29 deliveries.

Tigerair and Jetstar Asia have suspended expansion until at least 2016.

CAPA said that LCCs including full-service airline group and their budget airline subsidiaries are still driving most of the growth in Southeast Asia.  

“2015 could bring some more adjustments to the delivery stream along with consolidation. Capacity cuts by some of the flag carriers are also likely as they finally start to make some of the difficult decisions they have avoided for years,” it said.