'Thin' profits for South-east Asian carriers amid tougher competition: IATA

South-east Asian airlines are likely to see "thin" profits to come due to competition from budget and Middle Eastern carriers.
South-east Asian airlines are likely to see "thin" profits to come due to competition from budget and Middle Eastern carriers.PHOTO: ST FILE

SINGAPORE (AFP) - South-east Asian airlines are likely to see "thin" profits for some time to come as competition from budget carriers and Middle East rivals squeezes earnings, the IATA chief said on Sunday (Feb 14).

The recent global stock market turmoil is also expected to take a toll on air travel, particularly in business class where full-service airlines earn most of their profits, said Mr Tony Tyler, director-general of the International Air Transport Association.

"Airlines in this region are finding profitability quite thin because of the pressure of strong competition, and there's a lot of capacity in the market," Mr Tyler told reporters ahead of the Singapore Airshow, which begins on Tuesday.

"When you take the strong competition from low-cost carriers in the region... and you take the very strong competition for long-haul traffic from the Gulf carriers, profitability for airlines in this region is not strong at all."

IATA in December estimated global airlines' net profit for 2016 at US$36.3 billion (S$50.7 billion), up 10 per cent from its estimate of US$33 billion for 2015.

But Mr Tyler said more than half of this year's profit would come from North America, with earnings by South-east Asian carriers likely to come under heavy pressure.

Underscoring the challenge, Mr Tyler said no-frills carriers now account for 54 per cent of capacity in South-east Asia, up from around 38 per cent in 2009.

Comparably, budget airlines account for 31 per cent of capacity in the United States and 39 per cent in Europe. The global average is 26 per cent.

Budget carriers like Malaysia's AirAsia, Indonesia's Lion Air, Singapore-based Jetstar, Thailand's Nok Air, Cebu Pacific of the Philippines and Vietnam's Vietjet are giving regional industry mainstays like Singapore Airlines a tough challenge.

Gulf carriers like Qatar Airways, Etihad and Emirates have eaten into their South-east Asian rivals' long-haul premium markets by offering top-notch in-flight services and the latest aircraft.

Mr Tyler said South-east Asian legacy airlines "can play to their particular strengths" to compete, leveraging on their strong brands and service quality.

They must also keep cutting costs and investing in modern fuel-efficient planes, he said.

"The airlines in this part of the world are generally well run, efficient businesses and they're quite capable of competing... but it's just certainly at the moment a tough market," the IATA chief said.