Source: Business Times Author: Jeeva Arulampalam 02/25/2009
Subject Concerned: Opinion Airlines Aviation Fuel
The gloom and doom of the aviation industry has spread to even the best of legacy carriers.
Although oil prices have come off tremendously, the switch in woes to the global economic crisis has seen a direct impact on air travel.
International passenger traffic for December 2008 dropped 4.6 per cent from a year ago, while cargo traffic dipped some 23 per cent, said the International Air Transport Association (IATA) recently.
As passengers look for cheaper air travel options and businesses downgrade their corporate travel policies, airlines are facing greater competition to fill their planes.
IATA said business travel within Asia was down 25.1 per cent in December. It fell 19.7 per cent across the Pacific and was down 17.3 per cent on Europe-Asia routes.
Even a premier carrier like Singapore Airlines (SIA) is grappling with lower travel and cargo demand and has resorted to cutting flights to other Asian cities and may contemplate deferring future plane orders.
The airline plans to cut capacity by 11 per cent starting in April and ground 17 of its 102 aircraft, after seeing its third quarter net profit drop 43 per cent to S$337.2 million (RM809.28 million).
The world's largest airline by market value said the decrease in net profit for the quarter ended on December 31, 2008, was due to hedging losses and lower travel and cargo demand.
However, SIA is in better shape compared with Europe's biggest airline Air France-KLM, which dipped into the red in the final quarter of 2008, posting a net loss of EUR505 million (RM2.3 billion) and an operating loss of EUR194 million (RM905 million).
The release of the carrier's third quarter results also brought about job cuts and slashed capital expenditure plans.
With the bottom lines of full-service carriers taking a hit from hedging losses and weaker passenger movement, the stage seems set for Malaysia Airlines (MAS) to follow suit.
The outlook for MAS, which will release its fourth quarter results on February 26, does not look good, said an analyst.
"While oil prices have declined, the fall in demand has affected other airlines and will no doubt affect MAS," the analyst said.
"Operationally, they will make a profit but the uncertainty now lies in their hedging position and if this translates into a hedging loss," he said.
MAS has continuously reiterated that it looks to its competitors in the region in terms of volume and how much they hedge.
"We take all these factors and hedge in the middle. The philosophy is we level out the playing field. If we make a mistake, everybody makes a mistake," said managing director and chief executive officer Datuk Seri Idris Jala.