CAPA Sees Weak Market For Asian Airlines After Q1 Results

May 15, 2012, 3:06 pm

MANILA, Philippines — The outlook for the normally buoyant Asian market has further dimmed following a rare quarterly loss for Singapore Airlines (SIA).

The Center for Asia Pacific Aviation (CAPA) noted that SIA group's first net loss since the global economic crisis of 2008 could be seen partially as an indication of its weakening market position. But in reality it is probably more indicative of the broader challengers facing Asia’s full-service airline sector, said CAPA.

"For at least the foreseeable future, market conditions remain bleak and the challenges confronting SIA remain daunting. The recession in Europe, which accounts for 16% of the group’s system-wide revenues, shows no signs of abating," said CAPA.

"SIA is also heavily exposed to the cargo market, which the group is expecting will remain depressed at least through the next quarter. SIA Cargo ended FY2012 with an operating loss of S$119 million (US$95 million)."

“Advance bookings for the coming quarter are higher year-on-year, albeit off a low base from the post-Japanese earthquake period last year. Promotional activities necessitated by intense competition amongst airlines are expected to place downward pressure on passenger yields, especially in Europe and the US where demand continues to be impacted by the anaemic economic outlook,” SIA says in its outlook for the new fiscal year.

“The recovery of air freight demand will be gradual, possibly only in the second half of the year. Cargo yields are likely to remain stagnant for the next quarter. Fuel prices are expected to remain at high levels, which will adversely impact the Group’s operating performance.”

While archrival Cathay Pacific Airways has had a higher profit margin than SIA over the last year, Cathay also has seen its profits slump significantly. Cathay recorded a 61% drop in profits for calendar 2011 to HK$5.501 billion (US$709 million) on revenues of HK$98.4 billion (US$12.7 billion).

Cathay has warned that its first half 2012 results “are expected to be disappointing.” Cathay cites continually high fuel prices and a weak cargo business, which it says in its warning “has shown no sign of a sustained recovery.” It also says that it continues to see softening in both economy and premium class yields.

CAPA says Cathay’s warning signals more than the poor SIA result that 2012 will be a tough year for Asia’s full-service airlines. Cathay is in a relatively better position than SIA given it is less exposed to the European market, is at the doorstep of mainland China market and does not currently face significant LCC competition in its home market. If Cathay sees gloomy skies ahead, the fundamental market conditions in Asia are clearly awry, says CAPA.

Leading the depressed situation is not only weakened economic conditions in Europe but a slowdown in mainland China, while almost every index measurable pointing to slowed growth in Europe, says CAPA.