Airlines to see growth

Airlines to see growth

The year ahead would be better than 2015 for airlines with experts predicting growth in air passenger traffic at between 2 per cent and 3 per cent.

Last year the industry saw marginal decline of 1 per cent and the slight upside this year is expected to force airlines to continue to be creative in pricing their products well enough to entice travellers whose wallets are squeezed due to rising cost of living and a volatile ringgit.

It was negative growth last year which used to average around 8 per cent previously. But that kind of growth is not likely to happen so soon due to the impact of the triple air disasters of 2014.

"It is not promising... soft as in 2015," said the Malaysian Association of Tour and Travel Agents president Hamzah Rahmat on aviation travel.

"It is still uncertain times and people only book air tickets at the very last minute. It makes us (the travel agents) and airlines nervous," he adds.

But AirAsia group CEO Tan Sri Tony Fernandes said "there seems to be rational capacity in the market, so I am optimistic of the market. However, cost has to be kept down.''

Malindo Air CEO Chandran Rama Muthy added that "2016 will be a good year but we hope the economy will recover."

CAPA Centre of Aviation analyst Brendan Sobie predicts a 2 per cent domestic market growth rate, while Maybank Investment Bank senior analyst Mohshin Aziz is looking at 3 per cent-4 per cent this year after a minus 1 per cent last year.

Mohshin added that the Malaysia air sector was the worst performer last year while Japan, Taiwan, China and to some extend Australasia were the best performers.

Malaysia Airports Holdings Bhd (MAHB) in its November statistics said passenger traffic for the past 12 months at KLIA's main terminal was 22.9 million (S$7.5 million), down 8.4 per cent, and KLIA2 recorded 26 million, an increase of 9 per cent over the previous period in 2014.

Overcapacity is an issue in the region but since Malaysia Airlines Bhd (MAS) cut capacity by 30 per cent last year, it helps adjust seat capacity here even though there are capacity additions this year.

AirAsia is taking delivery of 1-2 new aircraft this year, Malindo 5-6, and MAS will return its B777.

"The supply and demand model will change, the supply is less than demand and the players going forward will fight in terms of inventory,'' Mohshin said.

Due to falling oil prices, airlines' operating cost is down as fuel cost now makes up 20 per cent of total operating cost from 30 per cent-40 per cent earlier.

Despite lower cost, airlines will not likely pass the savings to consumers but impose higher ticket prices.

Prices had been going up since August, said Mohshin.

However, Fernandes felt the prices of tickets would remain stable. He added that "we want to keep fares down''.

Hamzah said travellers in Malaysia would be selective due to the rising costs and volatile ringgit

Apart from limited local expansion, several global airlines including those from China and Europe will fly into KLIA for the first time this year and existing ones will increase their frequencies.

There is also talk that Australia's Qantas may use its partner Emirates to fly the KL-Sydney route sometime this year. Qantas has the rights and the arrangement will be similar to that with Emirates on the current KL-Melbourne route.

All eyes will also be on MAS this year as to how it reshapes itself after an intense cost-cutting exercise and whether it can successfully regain part of the market share it lost since the air disasters.

Its new code share with Emirates will take off in February but it remains to be seen how much traffic volume MAS can get from this tie-up.

The market will also wait with abated breadth on whether Fernandes will take any of his airlines - AirAsia and AirAsia X - private.

"The market is speculating, but let's see if it happens,'' said an analyst.

Recently, Singapore Airlines said it was taking the unprofitable Tiger Airways private.

Malindo's Chandran said "we will add 5 to 6 new B737 aircraft and expand our international routes".

A new airline, Rayani Air entered the local air space scene last month and later this year Flymojo will take to the skies out of Senai

There is no cause for concern with Rayani Air's entry, says Mohshin, though Sobie felt Rayani could spice the market but for now it only has two aircraft.

Globally, airlines will see profit soaring with low fuel prices and the International Air Transport Association expects 3.8 billion passengers traffic this year. Global airlines will rake US$36.3bil in profits this year from US$33bil last year, thanks to the ultra low oil prices.

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