Asian airlines brace for more rough weather

Asia's leading airlines are bracing themselves for more rough weather after earnings nosedived in the first quarter with no signs of a global economic recovery in sight, industry analysts said.

Compounding the airlines' woes are the outbreak of Influenza A (H1N1) flu and growing popularity and longer reach of budget airlines in the region, they said.

Singapore Airlines (SIA), the latest Asian carrier to release its results, said net profit in its fourth quarter ending March tumbled 92 per cent on the year to S$41.9 million (S$1 = RM2.42).

During the quarter, revenues sank an annual 19.1 per cent to US$3.32 billion (US$1 = RM3.54) while in the fiscal year to March, net profit fell 48.20 per cent to US$1.06 billion, SIA said.

SIA chief executive Chew Choon Seng said the air travel slump appeared to have levelled off but there was still no evidence to suggest that the situation was starting to improve.

"So we are seeing a flattening out," he said, but added that while the situation was more encouraging, a real recovery "is still not visible yet".

SIA earns about 40 per cent of its revenues from premium traffic, or business and first-class travel, and it has been hit hard by the drop in corporate travel, along with Cathay Pacific of Hong Kong and Australia's Qantas.

All three airlines have announced measures to contain costs such as unpaid leave and reducing capacity but there is only so much that they can do on the expenditure front, analysts said.

"I don't see anything at the moment that can help the airlines... They are doing everything they can to cut their costs," said Jim Eckes, managing director of the Hong Kong-based consultancy Indoswiss Aviation. "They will need an economic recovery which so far we just don't see."

Premium traffic has declined on average 30-40 per cent from a year ago, said Eckes.

"Nobody is flying these days in first class or business class... The high-yield business has disappeared," he said.

Eckes said the H1N1 flu outbreak, which has infected over 8,000 people and claimed 72 lives, only adds to the airline sector's woes.

"It's hard to tell how the virus is affecting travel but it certainly isn't helping the airlines when they are down and they are really down right now," he said.

Derek Sadubin, chief operating officer of the Sydney-based Centre for Asia Pacific Aviation (Capa), said the region's leading full-service carriers were facing additional pressure from discount airlines.

"We are seeing a squeeze from both ends," Sadubin said. "The only hope is that the US economy can start to regain some traction and stimulate the world economy back into gear."

Cathay Pacific said in April that revenues plunged 22 per cent in the quarter to March, just weeks after announcing it lost more than a US$1 billion (RM3.54 billion) last year. It was the company's first full-year loss in a decade.

Australia's Qantas announced last month plans to further cut jobs to cope with the slump and more than halved its profit forecast for the financial year to June while deferring plane orders.

Asia's biggest carrier, Japan Airlines, reported in May a net loss of 63.2 billion yen (100 yen = RM3.69) for the 12 months to March, against a profit of 16.9 billion yen the previous year.

It predicted a similar loss for the year to March 2010 and announced 1,200 job cuts to weather the air travel downturn.

Despite the crisis, SIA said it would still go ahead with plans to take delivery of five Airbus A380 super jumbo jets this year but analysts are sceptical if this is the right move amid the global slump.

"They have to seriously review whether they should take the additional A380s," analyst Shukor Yusof of Standard and Poor's Asian Equity Research said. "This is quite severe," he said of the 92 per cent plunge in fourth quarter net profit.

SIA currently has six A380s in operation.-


Source : BusinessTimesOnline
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