Most Southeast Asian airlines still in the red in Q3

MANILA, Philippines - Majority of airlines in the Southeast Asian region remain in the red in the third quarter of 2015, despite improved market conditions and lower fuel prices.

Latest industry report from think tank Center for Asia Pacific Aviation (CAPA) showed Southeast Asia’s airline sector continues to struggle and underperform compared to other regions despite some notable improvement in market conditions.

For the third quarter, 11 Southeast Asian airlines in the sample of 20 publicly traded airlines and affiliates were unprofitable, including low-cost carrier Philippines AirAsia despite narrowing its losses to $19 million from the $30 million loss in 2014.

Other airlines that were unprofitable include Malaysia AirAsia X, Tigerair Singapore, Thai Airways, SIA Cargo, Nok Air, Scoot, NokScoot, Indonesia AirAsia X, Thai AirAsia X, and Indonesia AirAsia.

“Several airlines from Southeast Asia are only marginally profitable and overall the sector remains less profitable than most other regions,” CAPA said.

On the other hand, carriers whose profits rose in the third quarter were Malaysia AirAsia, Bangkok Airways, Garuda Indonesia budget subsidiay Citilink, and Singapore Airlines full service regional subsidiary SilkAir.

Low-cost carrier Cebu Pacific turned around from a $2 million loss to a $22 million profit while flag carrier Philippine Airlines posted $5 million profit from last year’s $3 million loss.

The sector recorded operating profits of about $700 million for the first nine months of 2015 and is on pace to generate approximately $1 billion by year-end.

“But this represents less than on-fifth of the total profit expected from all of Asia Pacific. Southeast Asia’s dynamic airline sector needs a higher overall profit margin and a larger portion of profitable airlines to be sustainable,” the report said.

The Asia Pacific airline sector is projected to turn an operating profit of more than $5 billion for 2015. Currently, Southeast Asia accounts for about 25 percent of seat capacity in Asia Pacific and about five percent of global capacity.

Furthermore, CAPA expects the Southeast Asian airline sector to be back in the black and will see more improvements in 2016 given the economic growth and the region’s fast expanding middle class population.

“Low fuel prices may help drive improved profitability in the short term but could be a detriment as airlines are less likely to cut capacity or exit the market entirely. And with the intense competition in the region and the huge order book, very few airlines are likely to achieve margins above normal return of investment over the next several years,” CAPA said.