OUTBREAK TO IMPACT ASIAN CARRIERS IN FIRST HALF
Capacity cuts on short notice will dampen airlines’ profitability, says analyst
THE travel restrictions and flight suspensions as a result of the novel coronavirus outbreak will adversely impact Asian airlines’ yields and profitability, which are already depressed.
Aviation specialists said several markets in Asia have been suffering from overcapacity and “irrational” competition.
They warned that following a significant reduction and suspension of flights to China, challenges facing airlines throughout Asia may intensify.
“Cutting back (frequencies) at a short notice can impact profitability,” analyst Brendan Sobie told the New Straits Times.
He said airlines have long-term capacity commitment in terms of fleet size and number of crew members, making it difficult to manage capacity cuts at short notice without impacting profit.
Sobie said there will be a significant impact on the revenues and profits of main Asian airlines in the first half of this year.
“There will be wider economic impact as well due to the reduction in the number of travellers, particularly visitors from China. Several Asian countries rely heavily on tourists from China, including Malaysia.”
He said industry forecasts of higher airline profitability, issued prior to the emergence of the coronavirus, are now unlikely to be achieved.
“I believe we will see a reduction in airline profitability in the Asia Pacific this year.”
However, he said the market will recover relatively quickly after the worst is over.
Sobie said the outlook could improve in the second half.
MIDF Research aviation analyst Adam M. Rahim said airlines should solidify domestic services as demand remains strong.
He said Malaysia Airports Holdings Bhd’s passenger growth dropped 1.5 per cent year-on-year to 33.5 million during the Severe Acute Respiratory Syndrome outbreak in 2003.
“Total international passengers at the Kuala Lumpur International Airport travelling to and from China declined 10.7 per cent during the period.”
Adam said AirAsia’s available seat kilometres for China routes contribute about 10 to 15 per cent to its total capacity.
“AirAsia’s long-haul affiliate, AirAsia X, has a higher exposure to China routes.”
MIDF Research expects AirAsia X’s revenue passenger kilometres to decline up to 20 per cent, assuming a worst-case scenario of passengers getting full refunds.