Global Credit Crisis effects on the malaysian aviation industry

[Jannar T 0]

As we have seen in the past few weeks, the global economy is in turmoil. This week, trading in major stock markets worldwide crashed. Trading in places like Japan, Hong Kong & Jakarta had to be suspended due to the freefall of the stock market. The world is facing an economic meltdown......how does this affects us in the aviation industry.

 

As history has taught us, airlines are very fragile babies during economic downturns. Air travel / Air Freight will tumble down in demand if the economies that these airlines depend on slow down. The formula is simple, with a global credit crunch (banks are low in cash), there will be less business opportunities as financing of trade is effected, this in turn will mean there will be less trade, less trade means less travelling for business man, less freight forwarding, less income, which will spiral down to the common worker, who might lose a job or will earn less money, this will mean less people will take holidays or travel. Spending will be tightened.

 

More airlines (especially in the US) have filled for bankruptcy and closed shop in the last 12 months compared to the last 5 years ( source: IATA website ). Will we here in Asia & especially ASEAN be affected? There are many aspiring cadet pilots who are in Flying Schools at the moment. Hundreds of them will be licensed pilots hungry for jobs in the next 18 months. Will there be enough job opportunities to go around. To add to the concern, there are plans for even more flying schools to be set up & further saturate the job market.

 

Companies such as Air Asia have been & are currently aggressively growing. Will they be able to sustain they're growth. Their stock price clearly does not seem to have investors confidence, so much so the company is planning to buy back its options that it made public because it believes they are valued more.

 

MAS in the last 18 months under the much hyped BTP (back to profitability) plan has cut out routes those were not making money, especially into Europe. Even their cadet intake has considerably slowed down.

 

Firefly has yet to post a single quarter of profit & remains till today an acknowledged experiment by MAS.

 

Transmile have grounded their wide body fleet & are considerably downsizing, they lay off their wide body crew.

 

The question remains as how the global economy will affect us here in this region, some argue that the current credit crunch will propel the emerging super economies such as India, China & the former soviet states such as Kazakhstan to the forefront and represent huge opportunities for our local air travel / freight companies. Do we have the capacity to expand into these markets or will our competitors get there first?

 

[BC Tam 2]

..... Trading in places like Japan, Hong Kong & Jakarta had to be suspended due to the freefall of the stock market .....

Wow, very significant quote there - would you care to share your source of info ? I'm only aware of the Russian markets being suspended (since resumed), so far that is

 

But a good, thought provoking topic all the same

[Jannar T 0]

Wow, very significant quote there - would you care to share your source of info ? I'm only aware of the Russian markets being suspended (since resumed), so far that is

 

But a good, thought provoking topic all the same

 

my appologies, only in Jakarta trading was suspended, in Japan , the market was down 9.38% & Hong kong 8.17%, i mis read this article published by The Star newspaper.

 

 

Thursday October 9, 2008

Asian bourses fare worse on hedge fund unwinding

 

 

By FINTAN NG

 

fintan@thestar.com.my

 

PETALING JAYA: Stock markets in the Asia-Pacific plunged yesterday on panic selling as terrified investors fled equities for a fifth consecutive day. The spread of the global financial meltdown sent the Japanese bourse plummeting to its lowest level since October 1987.

 

Asian markets fared worse than the US and European bourses because hedge funds were unwinding their positions in Asia, sending markets into a free fall, analysts said.

 

Japan’s benchmark Nikkei 225 plunged 952.58 points, or 9.38%, to 9,203.32 while Hong Kong’s Hang Seng Index dived 1,372.93 points, or 8.17%, to 15,431.73.

 

The Nikkei 225 has lost a total of 1,951 points over the last five trading days, while the Hang Seng Index has shed 2,780 points.

 

Trading on Indonesia’s Stock Exchange was halted at midday after the Jakarta Composite Index plummeted 10% or 168.05 points to 1,451.66, triggering a circuit-breaker. Trading in the afternoon session was also suspended.

 

The meltdown also gripped Russia, sending the MICEX Stock Exchange into a 14.4% free fall in the first half-hour alone before the Russian stock exchange decided to close its markets.

 

In Malaysia, the KL Composite Index slumped 27.04 points or 2.71% to close at 970.19, off the day’s low of 959.49.

 

The decline on Bursa Malaysia was not as steep as in other major Asian markets but a total of RM18.18bil was wiped out from the market capitalisation, reducing it to RM737.67bil yesterday.

 

Stocks which fell to fresh year’s lows included Malayan Banking Bhd, IOI Corp Bhd, Glomac Bhd, Lafarge Malayan Cement Bhd, and EON Capital Bhd.

 

Bursa chief executive officer Datuk Yusli Mohamed Yusoff said this was a crisis of confidence and supported the moves by the central banks to provide easier access to funds and reduce the cost of doing business.

 

Meanwhile, the British government unveiled a £50bil rescue package for the country’s banks but this was not enough to halt the slide in European markets, which recorded losses of between 4% and 5% in early trade.

 

To calm the financial markets, the US Federal Reserve, the European Central Bank, the Bank of England, the Hong Kong Monetary Authority and the central banks of Canada, Sweden and Switzerland all lowered key interest rates yesterday.

 

The Fed cut its benchmark rate by half a percentage point to 1.5%.

 

The rate cuts produced a brief recovery in European markets, but did not prevent major European indices from falling in late trade.

 

In what has been described by analysts as a crisis of confidence despite huge bailouts starting with the US$700bil Troubled Asset Relief Programme (TARP) passed by the US Congress late last week, major bourses worldwide have lost US$5 trillion in market value over the past week.

 

The International Monetary Fund has also raised its estimate of losses tied to US loans and securitised assets to US$1.4 trillion and cut next year’s global growth rate to 3%.

 

United Overseas Bank economist Suan Teck Kin noted that a more coordinated effort to address the challenges ahead might result during the annual meetings of the IMF, World Bank and G7 countries between Oct 10 and 13.

 

He told StarBiz that the piecemeal intervention of governments in shoring up the capital base of banks was not effective and that “joint global coordination” was needed.

 

Aseambankers Equity Research head Vincent Khoo said the interest rate cuts were not good enough, adding that more measures had to be implemented.

 

“Central governments must come up with more measures to coax banks to lend,” Khoo said. “There must also be a system to provide security to counter-party risks to the banks.”

 

Aseambankers head of retail research for equity markets Lee Cheng Hooi said the first support level for the CI was 959 points, followed by 939, Lee said.

 

If the selling continued, the index could hit 895 within a week, Lee added.

 

[BC Tam 2]

Indian perspective

 

Airlines brace for lower occupancy on international routes

OCT 12 - It will be a harsh winter for the airline industry. The slowdown in the global economy could impact both domestic and international airlines flying on several international routes. Both segments - leisure flyers and corporate travellers - are likely to be affected.

 

"With fund managers who fly to financial capitals such as Hong Kong, Tokyo, London and New York having little or no funds to manage any longer, there is likely to be a cutback on travel. Similarly, with the average traveller having lost money on the bourses, the leisure segment market is also likely to be impacted," said a senior official with a South East Asian airline.

 

Decline since May

 

An official of a major European carrier pointed out that while the situation had worsened in the last two-three weeks, there has been a steady decline in travel from India to major destinations in the US and Europe since May.

 

"From this summer, the larger Indian companies have been putting restrictions on travel, which saw less off take of tickets at higher prices, something that was not happening earlier," the official pointed out.

 

With product sales dipping, several companies have cut back on 'incentive' trips abroad to several nearby destinations in South East Asia, including Bangkok, Singapore, and Malaysia.

 

Industry watchers feel that the drop in disposable incomes and fear of job losses, specially in the West, could see fewer people coming to India.

 

"NRI and Visiting Friends and Relatives segments of the market, comprising people who generally travel to India during the winter months, may push back their plans fearing that they may not have jobs when they return after their vacation. This is bound to affect almost all airlines operating on these routes," a senior official of an Indian airline with operations to both the US and Europe told Business Line.

 

This is, however, contested by several international airlines operating here from South East Asia and Europe who say that passenger bookings on flights to India are high even for the peak winter season, although the passenger bookings out of India during that period tell a rather dismal

story.

 

The impact of the slowdown is likely to be felt for the next three-to-six months and to overcome the crisis some airlines could look at cutting down the frequency of flights as also operating smaller aircraft on routes to India.

 

Price war?

 

However, for the passengers, there is a silver lining in this time of gloom. Several airlines are now openly talking about a price war breaking out on several international routes from India.

 

"The basic fares on several routes from India look set to dip as airlines will resort to any measure to fill their seats. While it will not be something like the fly-for-free or for Rs 1 offer of domestic airlines, some operators could look at offering the basic fare at prices which just about cover the fuel cost of the route. The passengers will still have to pay the fuel surcharge and other charges which will make the fare slightly more expensive, but much less than what is being paid at present," said an official of a major European airline. - The Hindu

 

from here