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SOUTHEAST ASIA OUTLOOK
AS EVERYONE IN THE INDUSTRY KNOWS, Southeast Asia has
been a hotbed of growth over the last few years with carriers like
AirAsia, VietJet and several others ramping up the competition. While
there are more people flying in the region than ever before thanks to
low-cost carriers (LCCs), profits have been “meagre”, according to
an analysis and outlook by the Centre for Aviation (CAPA). Analyst
Brendan Sobie said in a recent report that profitability will likely
slip in 2019.
“Of 20 publicly traded airlines or affiliates based in Southeast Asia,
only six were in the black” in the third quarter of 2018 and 19 saw
profits decline compared to the same quarter in 2017. “Intense com-
petition and a generally price sensitive population made it difficult
for airlines to pass on high fuel costs,” Sobie wrote.
The CAPA analyst said the outlook for fuel costs is uncertain, but
“what is certain is that competition will remain fierce in Southeast
Asia, pressuring yields as airlines struggle to find profitable markets
for deploying additional aircraft.”
Sobie added that the outlook for 2019 is “unwelcoming”, particu-
larly if fuel costs increase, and there was “limited room” for further
LCC market share gains because the LCCs are already dominating
the market as illustrated by the fact that LCCs have added nearly
200 million seats in the last decade and the LCC penetration rate has
gone from less than 30 percent to almost 50 percent. Full-service
carriers have also added more than 120 million seats on an annual
basis this decade.
The key markets for LCCs include Indonesia, Thailand, Vietnam,
Malaysia and the Philippines, with LCCs accounting for more than
70 percent of the market in Thailand and almost 70 percent in the
Philippines. These countries have domestic markets of at least 25
million passengers annually and combined, all five account for 220
million annual passengers with Indonesia alone accounting for 100
million, according to the outlook.
With the domestic sector saturated, these same LCCs are looking
to international routes for growth. LCCs account for 30-40 percent of
the international seat capacity in Thailand, Indonesia, Vietnam and
the Philippines while in Malaysia LCCs account for 50 percent of the
international market. LCCs also account for more than 30 percent of
the market in Singapore, which does not have a domestic market.
LCCs also account for nearly 30 percent of international capacity in
Cambodia and Myanmar and in Brunei and Laos LCCs count for 15
percent and 22 percent respectively of international seat capacity.
Sobie said in his report that routes from Southeast Asia to China
are on the rise with at least 12 Southeast Asian LCCs offering at least
20 weekly services to China with AirAsia being the largest foreign
airline group in China and Lion Air the third-largest. While Chinese
visitor numbers to Southeast Asia have been on the rise, Thailand
saw a double-digit drop in Chinese visitors in August, September
and October after a boat accident in Phuket in July last year killed
47 Chinese nationals.
The CAPA analyst also pointed out that Southeast Asian airlines
are scheduled to receive about 200 aircraft this year, and while
some are replacements about 120 will be new planes used to ex-
pand capacity. However, Sobie said, “the domestic and regional
market within Southeast Asia is generally oversupplied. There are
opportunities to launch new secondary routes within Southeast Asia,
but such routes are generally low yielding. India, Korea, Japan and
Taiwan are growing, but have also become extremely competitive
and in some cases are affected by bilateral constraints.”
Overall, aggressive discounting on ticket prices, an inability to
pass on higher fuel costs and price-sensitive passengers have some
airlines “desperate” to raise cash. Sobie said higher airport charges
could also impact demand in 2019 and if fuel prices start rising again,
“ things could get really ugly”.
SOUTHEAST ASIA LCCS V NON-LCC SEATS
16,7 15,7 72
Outlook dims for Southeast Asia sector
While carriers in Southeast Asia have managed to eke out profits over the
past few years, uncertain fuel costs, tight-fisted consumers and intense
competition will exert pressure on airlines in the region and their bottom lines.
Editor Matt Driskill looks at the latest research from CAPA.
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