Trade Tensions, Fuel Costs Weigh on Southeast Asian Airlines

 - May 17, 2019, 11:30 AM
Rising fuel costs halved Singapore Airlines' profit during its last fiscal year. (Photo: Singapore Airlines)

Despite occupying a market of rapid growth and huge potential, Southeast Asia has a market for full-service operators that is becoming increasingly uncertain as airlines look to restructure amid external conditions varying from rising trade tensions and volatility in oil and currency markets to intensifying competition from low-cost carriers (LLC). Among those feeling the crunch, Thai Airways reported an 83 percent drop on Thursday in its year-over-year first-quarter profits due to declining passenger yields and the appreciation of the Thai baht against major currencies.

The national carrier, together with five of its subsidiaries, swung to a steep operating loss of $26.2 million for the financial period ending in March, a significant decrease compared with a net profit of $120 million in the same period a year ago. Total revenue slipped 7 percent year-on-year to $1.5 million partly due to lower passenger and freight volume while total expenses climbed by 2 percent to $1.6 million. Thai Airways president Sumeth Damrongchaitham said the U.S.-China trade war along with the baht appreciation and intensifying market conditions all contributed to the 12.9 percent decline of its cargo-based income.

Thai Airways said it will continue to concentrate on raising ancillary revenues under the “Montra Plan”—a 2018-2022 restructuring program designed “to escape from the cycle of problem traps”—and return the airline to profitability. The carrier now awaits cabinet approval to acquire 38 new aircraft as part of a seven-year fleet modernization plan.

Meanwhile, Bangkok Airways and its 13 subsidiaries reported a 29-percent dive in its first-quarter net profits to $16 million; total revenue saw a slight decrease of 0.5 percent year-over-year to $245 million. While the airline blamed intense competition for the 4.2 percent drop in airline-related revenue, its airport-related services and unallocated revenue from its subsidiaries increased by 11.6 percent and 35 percent, respectively. The airline will continue to increase frequency on existing routes rather than add flights to new destinations.  

Elsewhere in Southeast Asia, Singapore Airlines Group (SIA) reported its highest-ever annual revenue on the back of improved passenger yields, although rising fuel expenditures nearly halved its profit. The company’s revenue grew by 3.3 percent to $12 billion for its 2018-19 fiscal year ending in March, but annual net profit dropped 47.5 percent, to $496 million. Meanwhile, fuel expenditure climbed 17.6 percent to $500 million as jet fuel prices rose by an average 21.6 percent for the year.

Speaking with reporters on Friday, SIA chief executive Goh Choon Phong said that SilkAir, SIA’s regional arm, will merge with its parent brand after undergoing a $72 million cabin upgrade. The integration accounts for part of the company’s three-year transformation plan that began in 2018. A planned order for 31 Boeing Max 737 also “remains intact,” and will resume once aviation authorities deem the aircraft safe.