IATA says airlines in Asia-Pacific are finding profitability “quite thin”, but believes that they have what it takes to weather the current turbulence.
At a media roundtable with journalists, its chief executive Tony Tyler says the margins of airlines in the region are being impacted by strong competition from new airlines and the aggressive Gulf carriers, with high capacity in the market.
For the first three quarters of 2015, the EBIT margin for Asia-Pacific airlines was 0.3%, compared to 13.8% from its peers in North America. The disparity was partly a result from the strengthening of the US dollar.
Tyler also pointed out the growing presence of budget carriers, with LCC penetration in ASEAN growing from 38% in 2009 to the current 54%. He however questions their profitability.
“Budget carriers have kept a lot of market share but one has to ask how profitable are they. Of the growth plans they have, how realistic are they.”
He is also certain that Asia-Pacific airlines with large orderbooks are scrutinising how quickly they want to induct the aircraft.
“It’s easy to place these orders when times are looking good. But as the orders approach, I won’t be surprised if some of them aren’t pushed out,” he adds.
Tyler however stressed that Asia Pacific carriers are “quite capable of competing”, with their high service levels, strong brands and cost control. They are also investing in new, more efficient aircraft such as the Boeing 787 and the Airbus A350. When their fuel hedges come down, the airlines will also be able to feel the real benefit of the drop in fuel prices.
Asked if these carriers could undergo major restructuring, he says that most would make changes in the “nature of evolution rather than revolution”, focusing on managing costs and planning their networks to maximise revenues.
“I’m confident that these airlines are going to sail through this turbulence, but it’ll take a while.”
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Source: Cirium Dashboard
