Southeast Asia airlines return to profits in H1

MANILA, Philippines - The airline sector of the Southeast Asian region has returned to profitability in the first half of 2015, on the back of improved market conditions and lower fuel prices.

Last year, only five carriers were profitable and were able to further hike their operating profits for 2015.

These airlines included Philippine flag carrier Philippine Airlines (PAL) and budget airline Cebu Pacific, Malaysia AirAsia, Bangkok Airways and SilkAir.

PAL saw its profit surge by more than 400 percent to $120 million from $22 million, while Cebu Pacific posted $136 million from $67 million in 2014.

In the recent analysis done by the Centre for Aviation (CAPA), combined operating profits of the 16 publicly traded airlines amounted to $641 million for the first six months of the year, compared to operating losses of more than $500 million in the same period last year.

“But operating margins generally remain in the single-digits and lag most other regions. Southeast Asia remains an extremely competitive market with a high risk of continued overcapacity given the region’s huge order book,” CAPA said.

Of the 16 carriers, 15 saw their profitability improve in the first semester except Indonesia AirAsia which registered slight increase in operating losses due to the December 2014 crash of its Airbus A320.

Singapore Airlines, Thai Airways, Thai AirAsia, Garuda Indonesia, and Citilink were able to swing back to profit from 2014 losses, while Nok Air and Tigerair Singapore posted break-even results.

On the other hand,  SIA Cargo posted a $14-million loss, Philippines AirAsia,  $24-million loss and Malaysia AirAsia X, a $26-million loss.

“While certainly brighter than a year ago, the outlook for the Southeast Asian airline sector is still relatively cloudy,” CAPA said.

CAPA noted that demand for certain markets will be affected due to some national and economic concerns such as the recent bombings in Bangkok and economic weakness in Indonesia.

“The Philippines domestic market is also again starting to exhibit signs of overcapacity following a period of rationality and high levels of profitability,” it added.

Nonetheless, fundamentals of the Southeast Asian market remain solid as the region is expected to continue to see rapid economic and middle class growth, and the profitability of the aviation sector in the region is seen to improve if capacity and fuel prices remain low.

“But in the highly dynamic Southeast Asian market place, it is hard to imagine all airlines refraining from ambitious or strategic expansion. Meanwhile, low fuel prices along with political and economic stability can never be guaranteed,” CAPA said.