Despite cut-throat competition and incessant price wars that have severely reduced yields and drastically lowered airfares, Asia Pacific carriers are set to show better profits for 2016, according to the Association of Asia Pacific Airlines (AAPA) .
We concur with AAPA director general Andrew Herdman, who gave a lucid lowdown on the region’s airlines at the association’s 60th Assembly of Presidents in Manila on November 18. Watch Herdman’s presentation here.
The message that went across was clear: the world economy remains wobbly, interest rate worries in the US and elsewhere will continue to have an impact on airline operations, and global trade is stuck on a low growth path.
Endau Analytics is grateful and honoured to have been given the privilege by AAPA to share some insights during the event with two distinguished airline CEOs – Peter Bellew of Malaysia Airlines Berhad and Charamporn Jotikasthira of Thai Airways.
The panel session – “Outlook and Challenges of the Aviation Industry” – was moderated by IATA regional VP Conrad Clifford. See the discussion here.
Essentially we see several risks as we go into 2017 that are likely to influence the financial health of airlines in Asia Pacific. These include: (i) energy prices, (ii) US interest rates, (iii) financial market instability, (iv) economic weakness in emerging markets, and (v) geopolitical risks.
There’s just a high level of uncertainty, in our view, as we enter 2017 that airline CEOs will have to be extra vigilant and swift in navigating and responding to any unexpected challenges.
We see low jet fuel prices continuing into at least 1H17, if not for the rest of the year. That’s a boon for airlines operating fuel-efficient narrowbody and widebody (twin engined) aircraft but even with a barrel of oil at USD50, there’s a big question over the economics of an aircraft such as the A380, in our calculations.
Singapore Airlines CEO Goh Choon Phong, however, said his company’s fleet of 19 A380s were performing reasonably well under the current low oil price climate. He remains confident the big birds will be able to maintain its contribution to SIA as long as oil prices are at these levels.
Airbus A350-1000 takes off
Unfortunately we were unable to take up Airbus’ short notice invitation to witness the first flight of the A350-1000 in Toulouse on November 24.
Nevertheless, we heard from friends who were in attendance that the plane – the longest and largest twin engined aircraft Airbus has built – performed flawlessly. The A350-1000 is the largest variant of the A350 family, and in our view the best value-for-money widebody aircraft in the world today. It measures about 74 metres from nose to tail, seats 366 passengers (in typical 3-class configuration) and has a range of close to 8,000 nautical miles.
Entry into service (EIS) is slated for 2H17 with Qatar Airways as the first customer. The airline has ordered 37 of the -1000 variant. The A350 family is designed for efficiency and to provide extra space for passengers on medium- and long-haul flights.
The A350-1000 is the ideal replacement for Boeing’s B777-300ER, a brilliant, best-selling aircraft for the US manufacturer but which has come of age. SIA has 67 A350XWBs on order, including 7 A350-900ULRs for direct, non-stop flights to the US starting 2018.
The RR Trent 97-powered A350-1000 will compete head-on against Boeing’s 777-9X, which will be using GE9X engines. On paper the GE engine does look able to surpass the Trent in terms of fuel burn but in terms of overall economics (seat-mile cost and lower trip cost) and passenger comfort, it would appear the European plane has the advantage. It depends also on whether airlines prefer to configure their aircraft with 9-abreast or 10-abreast seats, in a typical 3-class configuration.
Taiwanese carrier TransAsia Airways announced on November 22 that it was closing shop following failure to stop hemorrhaging cash. Chairman Vincent Lin said TransAsia posted a loss of USD70 million in the first nine months of 2016 (from an annual loss of USD36 million in 2015) and was unable to get funding from potential investors.
The airline’s closure didn’t really come as a surprise given that there were signs it couldn’t sustain its business – TransAsia couldn’t pay for aircraft deliveries early 2016. The financial institutions that are exposed to TransAsia are listed here.
Safety concerns plagued TransAsia, following two fatal crashes in July 2014 and February 2015 involving its ATR72 planes. But its demise was also due to a decline in cross-strait traffic as well as TransAsia’s business model; its decision to form a low-cost carrier (V Air) in 2014, only to shut the discount carrier in October 2016, weakened the carrier.
Formed in 1951, TransAsia operates 19 planes, including six A320s, five A321s and eight ATR72s. It also has four A330s, one A321 and one A320 in storage. China Airlines (CAL), the flag carrier and EVA Airways are benefitting from TransAsia’s closure.
CAL and its subsidiary Mandarin Airlines are taking over all of TransAsia’s routes starting December 1 until February 15, 2017 (read here). TransAsia flies internationally to Osaka and Sapporo in Japan, Chiangmai in Thailand and Jeju in South Korea.