Free wine endangered on Asian airlines after OPEC accord
SOME of Asia’s marquee airlines that spoil passengers with free alcohol and in-flight entertainment may soon have to kick the habit.
The on-board giveaways, famously rolled out to every passenger in the 1970s by Singapore Airlines, will be unsustainable for some carriers after OPEC’s production cuts announced last week drive up the cost of fuel, according to aviation analysts. Other options include cutting unprofitable routes, retiring gas- guzzling aircraft and raising fares.
The deal reached by the Organisation of Petroleum Exporting Countries on Nov 30 couldn’t have come at a worse time for carriers such as Cathay Pacific Airways and Singapore Air that are battling excess capacity and declining premium traffic.
Asian operators are also particularly vulnerable to rising fuel costs as their profit margins are about half those of their North American peers after competition pushed down fares.
In order to survive, some Asian airlines may be forced to ape US low- cost carriers and charge for extras – ranging from food and alcohol to checked-in baggage – that have been taken for granted on long-haul flights for decades, according to Mathieu De Marchi, a Bangkok-based aviation consultant at Landrum & Brown.
“More full- service airlines in Asia Pacific might consider doing the same,” he said, declining to pick out the carriers in the region most likely to make customers pay.
Making money out of so- called ancillary services emerged among traditional US carriers following the global financial crisis, when their losses ballooned.
Delta Air Lines Inc. – profitable every year since 2010 – now employs the strategy to good effect, De Marchi said.
North American airlines are likely to generate an operating profit margin of 15 per cent in 2016 versus about eight per cent for Asia-Pacific carriers, according to the International Air Transport Association.
Budget airlines including AirAsia and Jetstar, which is
In order to survive, some Asian airlines may be forced to ape US low-cost carriers and charge for extras – ranging from food and alcohol to checked-in baggage – that have been taken for granted on long-haul flights for decades.
owned by Qantas Airways, have long tried to squeeze extra cash from customers during flights. Michael O’Leary, chief executive officer of European low- cost airline Ryanair Holdings, in 2009 suggested charging customers to use the toilet.
Fuel is typically an airline’s biggest expense and this year’s 30 per cent price increase is enough to threaten the global aviation industry’s five-year run of earnings growth, according to Heathrow-based advisory Flight Ascend Consultancy.
“Cathay is going to have to’’ start charging customers for extra services, said Neil Hansford, chairman of Strategic Aviation Solutions, an advisory business north of Sydney.
Cathay, Asia’s biggest international airline, is conducting what it calls a “critical review” of its business after an 82 per cent drop in net income for the first six months of the year.
Last week, Cathay said 2017 will be “challenging.”
Cathay seeks to provide a “consistent premium experience” on every flight and had recently raised the check-in baggage allowance in all classes and cut excess baggage charges, the carrier said in an e-mail. Singapore Air currently has no plans to introduce extra charges, a spokesman for the airline said. — WP-Bloomberg