Discounted airfares to dominate airlines sector this year

MAS' Peter Bellew left and Malindo's Chandran Rama Muthy(right inset. (This year, the three carriers – AirAsia group, Malaysia Airlines Bhd and Malindo Air – are expected to add 40 new aircraft to their current fleet, a move that will see an estimated 7,000 new seats to the system that is already facing over-capacity.)

PETALING JAYA: Discounted airfares for travellers are likely to dominate the aviation sector this year as the three large local carriers slug it out for market share.

Last year, airlines saw their profits rise despite the stiff competition that saw a lot of ticket prices slashed.

This year, the three carriers – AirAsia group, Malaysia Airlines Bhd and Malindo Air – are expected to add 40 new aircraft to their current fleet, a move that will see an estimated 7,000 new seats to the system that is already facing over-capacity.

Despite the stiff competition ahead, the local airline chief executives are bullish about their financial prospects, contrary to the International Air Transport Association (IATA) forecast that global airline profits for 2017 will be US$29.8bil, US$6bil lower than 2016’s US$35bil forecast.

“It is going to be a pretty good year especially with the weak ringgit (though) higher fuel prices,’’ said AirAsia group chief executive officer Tan Sri Tony Fernandes.

AirAsia has hedged a substantial amount of its fuel requirement for 2017 at lower prices, hence the optimism.

Malaysia Airlines Bhd CEO Peter Bellew in being optimistic about the year said it would focus primarily on the demands of travellers.

“A big focus for 2017 is fly to places where people want to go and where we can make money,’’ he said.

Bellew added that the big focus in 2017 will be China, where they will add 11 new destinations.

“We will also take a hard look at the loss-making routes amid fuel prices rising and the weakening ringgit,’’ he said.

Malindo Air CEO Chandran Rama Muthy said “we may look into international expansion than expanding in the already crowded domestic space and this will be good for tourism and the country’’.

Chandran expected passenger numbers to grow to 10 million in 2017 and the airline strengthening its flight frequencies.

Malindo has a fleet of 42 aircraft and with 10 new aircraft, it will have 1.2 million seats on offer every month.

AirAsia group offers millions of seats in several markets monthly and will add 28 new aircraft this year.

Malaysia Airlines is still looking to add A330 aircraft after phasing out the B777, but will take delivery of the A350, which will be used for its London flight from October onwards.

AirAsia X is expected to fly back to London via Gatwick sometime in July. With the bitter battle ahead, Fernandes expects “competition to be bleeding”.

Bellew predicted fares will drop to crazy levels in the second half of 2017 and right through to 2018.

“Malaysia Airlines will avoid the worst of the fare cuts and there really can only be one winner in what I think will be the greatest battles in aviation history among low-cost airlines,” he said.

Higher oil cost will affect airlines, and so will the new hike in passenger service charges for travellers.

IATA estimates fuel to account for 18.7% of the global industry’s cost structure in 2017, still lower than the 33.2% in 2012-2013. It expects jet fuel prices rising from US$52.1 a barrel (2016) to US$64.9 a barrel (2017). By March, when the prices will go above US$65 a barrel, it can be a bit painful for the airlines.

Bellew expects oil prices to hit US$70 by year-end.

But travel trade will remain vogue amid all the challenges as Expedia in association with several other parties believes that falling ticket prices and surging capacity suggests that “2017 could be a banner year for travellers taking to the skies, with more options to fly to more destinations for lower prices.

Moody’s Investors Service 2017 says in its global transportation industry review that “growth in passenger demand will remain slow overall, due to lacklustre global economic growth, geopolitical uncertainties and the threat of terrorism, but increasing demand in developing markets, supported by rising disposable incomes and loosening regulations, will act as an offset”.

Amidst the competition, AirAsia shareholders may be rewarded this year with the expected stake sale of its leasing arm and the planned IPOs of its units in the Philippines, Indonesia and group company in Hong Kong.

But a warning note from a local analyst is that the record profit the Malaysian airline industry enjoyed last year was unlikely to be repeated this year.

The industry would be bogged down by the weaker ringgit, higher oil prices, intense competition with the likes of Malaysia Airlines, Malindo, AirAsia and AirAsia X all expanding simultaneously and airport tax hikes.

“Malindo has added a significant number of planes the past six months, and the winner will be the airport operator, Malaysia Airports Holdings Bhd (MAHB), due to volume gains,” according to the analyst.

Source: The Star | Business | 2 Jan. 2017