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'Dark years' ahead for Asian airlines

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Will AK survive next two years? Honestly I'm 50/50 on this.

 

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'Dark years' ahead for Asian airlines

 

Agence France-Presse

Posted date: October 30, 2008

 

SINGAPORE -- Asian airlines face bleak business in the next two years amid a global recession and must deal with the challenges or face extinction, an industry conference was told Thursday.

 

Carriers from Asia and the Middle East, which are generally seen as having healthier balance sheets, will not escape the financial turmoil which has spilled over to affect the global economy, speakers at the conference said.

 

"Looking ahead, I think we are facing, frankly, a couple of dark years for the aviation business," said Peter Harbison, executive chairman of the Center for Asia Pacific Aviation consultancy.

 

"The thing we all realize by now is this is not just another downturn," he told the Aviation Outlook Asia conference in Singapore.

 

Harbison warned against airlines being complacent, saying any carrier that refused to take the challenges seriously would be at risk.

 

"There is no airline in this region -- and that probably goes for most of the world too -- that can be confident they will still be here this time next year," Harbison said.

 

"This is going to be a watershed, if it's not already, not just for the industry but for the global economy .... Any airline that thinks otherwise is seriously at risk."

 

Apart from having to cope with slowing travel demand, particularly in the lucrative corporate travel segment, airlines also must deal with volatilities in foreign currencies which will impact their hedging strategies, said Harbison.

 

Currency instability "has created massive problems for airlines in terms of their risk management, in terms of their hedging," he said.

 

"If that stays as an issue, it is going to continue to be highly disruptive for the treasuries of the airlines."

 

Andrew Herdman, director general of the Association of Asia Pacific Airlines, told the conference the mood in the industry had dramatically altered in the last few months.

 

"You saw the way everything has fallen off the cliff ... so the mood has changed," Herdman said.

 

He said the surge in oil prices to record levels of above $147 in July was "killing airlines' profitability".

 

While prices have since halved to about $70 a barrel, the revenue outlook for carriers remained extremely gloomy.

 

"It's still the number one cost for almost every airline in the world," Herdman said of fuel expenses.

 

http://business.inquirer.net/money/breakin...-Asian-airlines

 

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Will AK survive next two years? Honestly I'm 50/50 on this.

 

===

 

'Dark years' ahead for Asian airlines

 

Agence France-Presse

Posted date: October 30, 2008

 

SINGAPORE -- Asian airlines face bleak business in the next two years amid a global recession and must deal with the challenges or face extinction, an industry conference was told Thursday.

 

Harbison warned against airlines being complacent, saying any carrier that refused to take the challenges seriously would be at risk.

 

"There is no airline in this region -- and that probably goes for most of the world too -- that can be confident they will still be here this time next year," Harbison said.

 

http://business.inquirer.net/money/breakin...-Asian-airlines

 

Some how rather, I think MAS is right in doing what they are doing now despite the criticism....

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Got some interesting anecdotes about SQ.

 

I used my bmi miles to book myself and the other half on a trip to SIN, TPE and HKG over the Easter holidays, on SQ and TG in C. (MEL-SIN-TPE-HKG-SIN-MEL)

 

On the MEL-SIN segment we're both on separate flights as there was only 1 business class redemption seat available on each flight. Got into contact with some SQ contacts, hoping that they'd miraculously make an extra *A redemption seat available on the boyf's flight so that I can swap over. I was also hoping that with the global economic meltdown and Singapore officially in recession, the emptier cabins might mean they'd be willing to open up more redemption seats. After all, Sabre is telling me that the flight is rather empty with '9s' all over the place.

 

Quite the opposite! They came back and told me that they anticipate to be "fully sold out" for an entire 2 week period in both F and C, and that I feel v lucky to have gotten what I already have. They've also got 2 SQ PPS members waitlisted for Krisflyer saver redemptions, which book into the same thing as *A redemptions - so they can't possibly 'leap frog' me ahead of them. And that apart from the *A redemption seat that I managed to get for the boyf on his flight, they will not likely be opening up further *A redemptions nor krisflyer saver redemptions as that flight is a popular connector to their European long hauls. Oh well, at least we're still departing/arriving on the same day. just that I'd leave MEL and get into SIN a few hours earlier. And it's still 7 months away so I'd still keep staring at availability like a hawk, ya never know...

 

They then also mentioned that F and C bookings are extremely strong, stronger than the same period last year. Yet bookings for whY have declined significantly. You'd expect the opposite to occur in an economic crisis? :huh: My guess is that there is a higher level of pax who travel on discretionary income in whY, cf the typical demographics in J and F (corporate executives, business owners etc). But I'd also have expected some sort of substitute effect, as companies try to cut costs and try to get their executives downgrading a class or 2. But again corporate tickets usually book into full fare whY and it's not expensive to pony up with their own cash into C.

 

Finally, apparently they need whY to have a load factor of at least 70% for a flight as a whole to turn a profit as whY is supposed to cover the fixed costs. The yields from C and F have also fallen as the bigger seats have meant less pax, despite the higher fares. So despite C and F being full, even oversold - they will run at a loss with the loads in whY being as they are.

 

Just thought y'all will appreciate this little tidbit. :)

Edited by Keith T

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1) Nabiel - No risk at all, economic downturns are cyclical - which mean they happen every 10 yrs or so. What's happening now is just another cycle. Everybody will recover from it and enjoy boom times again. However, as and when recovery will take place is another qt.

 

2) I believe that Intra Asian travel will not be affected that much simply because I believe we Asians have high savings rate and do not live on heavy gearing ( live within our means and rely less on credit). This in turn mean Asians should have significant more disposable income than Americans and Europeans. As a side note, China has the highest savings rate and forex reserves in the world.

 

3) We might see a drop in load out of US and Europe during this downturn but if Intra Asian loads are able to shore up the differences, then carriers should be able to weather the storm subject to other conditions being equal. My hope is oil prices to stabilise or even drop abit more during this downturn and easing up of fiscal policies ( perhaps lowering tax rate and interest rate) and a more expansionary monetary policies ( public sector spending) in the Asian countries.

 

4) However, airlines with heavy gearing ( have lots of borrowings and small capital base) may be at higher risk. So they might defer new purchases to reduce their debt obligations and strive for further operational efficiency.

 

5) Realistically, no one can really tell what's going to happen.

 

Just my simple thoughts.

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Asian Airlines Will All Sink to Losses in 2009, Consultant Says

By Chan Sue Ling

 

Oct. 31 (Bloomberg) -- Singapore Airlines Ltd., Cathay Pacific Airways Ltd., and other Asian carriers will all post losses next year as the fallout from the global economic crisis curbs demand for air travel, an aviation consultant said.

 

``I can't see any airline making a profit next year for Asia,'' Peter Harbison, managing director of the Centre for Asia Pacific Aviation said at a conference in Singapore yesterday. ``Demand has fallen off very fast. This is a global problem and it's not going to be resolved in three months. It's going to be here for a year or maybe two years.''

 

Asia's airlines are heading for the ```worst-year ever'' as the credit-market meltdown that toppled Lehman Brothers Holdings Inc. and a wider economic slowdown cuts travel demand. Carriers in the region, and Korean Air Lines Co. and Malaysian Airline System Bhd., have already cut capacity to cope with the lower passenger traffic.

 

Airlines globally will post a combined loss of $5.2 billion this year, the International Air Transport Association has forecast. Losses in India, Asia's second-fastest growing major aviation market, will be $1.5 billion this year, the worst in the world outside the U.S., it forecast last month.

 

Merrill Lynch & Co., UBS AG and JPMorgan & Chase Co. are telling senior bankers in Asia to fly coach on short-haul flights and reduce non-essential travel. The financial-services industry has cut more than 140,000 jobs since a surge in subprime mortgage delinquencies began to roil global debt markets in 2007.

 

Global airline-passenger traffic dropped in September, the first decline in five years, IATA said on Oct. 24. As many as 28 airlines have gone out of business globally and a further 20 are at risk of a failure as travel demand wanes.

 

China Losses

 

Air China Ltd., China Southern Airlines Co., and China Eastern Airlines Corp., the country's top three airlines, and Jet Airways (India) Ltd. have all reported losses in the quarter ended September. Asiana Airlines Inc., South Korea's second- biggest airline, also posted a loss.

 

Cathay Pacific, Hong Kong's largest airline, in August posted its first half-year loss in five years. Singapore Air, Asia's most profitable airline, will report earnings next week.

 

``A lot of airline CEOs will be happy to still be in the black by the end of the year,'' said Andrew Herdman, Director General of the Association of Asia Pacific Airlines, which represents the region's 17 largest carriers. ``We are seeing a downturn in passenger demand, where growth has disappeared.''

 

To contact the reporter on this story: Chan Sue Ling in Singapore slchan@bloomberg.net.

 

Last Updated: October 30, 2008 22:00 EDT

 

 

http://www.bloomberg.com/apps/news?pid=206...amp;refer=india

 

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A little bird told me that if current loads, as described above, are to persist, SQ might well declare a loss sometime in the Jan-Jun '09 period. They are still holding up ok atm though.

 

I don't know how authoritative the source is so please take it with a pinch of salt until something is confirmed in print.

Edited by Keith T

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Frankly, I get the feeling that AAPA and CAPA are both in panic, gloom and doom mode. The economic situation is dire . . . and it surely has impacted travel but perhaps not yet to the extent that both organisations seem to be saying.

 

The airlines that will come out less bloody will be those whose network is balanced, whose fleet is lean and fuel-efficient, whose fleet utilisation is sustained at a certain level, whose staff numbers are not bloated and productivity is kept high, whose brand value is high (for this will keep its grip on the high net-worth premium passengers), whose planners are good at shifting capacity from weaker markets to those which are stronger and whose fuel-hedging policies are sound. Airlines with relatively younger fleet requiring less maintenance and hence downtime will be in an advantageous position.

 

Conversely, those that have over-ordered aircraft in the last few years for delivery right now and in the next year will experience difficulties and airlines from India (Jet Airways and Kingfisher Airlines are prime example - both have experienced "stomach upsets" from gobbling up their competitors - Air Sahara and Air Deccan respectively) immediately come to mind. Airlines that have huge staff counts and numerous "prestige routes" will need to shift gears and look at cutting both.

 

In times like these, airlines that are best able to keep to their core competencies will emerged stronger when the world economies recover. Asian carriers are definitely in a far better position than their American and European counterparts because there are still bright spots in the region. If Asian carriers dive into the pits as predicted by CAPA and AAPA, then one can only imagine where their US and European counterparts will end up in. Many Asian carriers - particularly those which have been hit by the Asian financial crisis of 1997/98 and SARS in 2003 - have learnt a lesson in belt-tightening and shifting capacities in lean times . . . lesson that could be put to good use again. The first of such steps are evident in SIA's winter schedule - suspension of Amritsar, reduction of services to Chennai and Bangalore, Shanghai, Jakarta, Seoul, Taipei, Bangkok, Manchester, Los Angeles etc and service boost to Istanbul and Dubai. While SilkAir is reducing services to destinations such as Chongqing, Chengdu, Kota Kinabalu and Cebu, this is balanced by increase in services to Kuching, Kathmandu, Siem Reap, Danang, Phuket and Chiangmai. For SIA, it might be a good time to accelerate the retirement of some B744s without waiting for more A380s and the last B777-300ER.

 

It would be interesting to see where other airlines slash services . . . and where they add new services.

 

I personally would be looking at LCCs - especially those that have huge orders that are being delivered such as AirAsia, Lion Airlines, Indigo Airlines etc. I hope that MH could pick up some early B737-800 deliveries if other airlines are asking to delay some of their planes. This would help MAS reduce fuel consumption, reduce maintenance cost and improve its domestic and regional product.

 

These are interesting times and for sure some airlines will go under . . . keep a watchful eye for these.

 

KC Sim

Edited by KC Sim

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