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SINGAPORE: Record-high oil prices have sparked the
biggest crisis in the Asian airline industry since the severe acute
respiratory syndrome (SARS) scare, and analysts say some carriers
are likely to go under if prices do not let up soon.
They say many of the region’s
airlines are ill-prepared to cope with the price surge, which saw
oil top $139 a barrel last week amid wide expectation prices will
only keep rising in the months ahead.
“No one is going to escape this
crisis unscathed,” said Derek Sabudin, an analyst from the
Sydney-based Centre for Asia Pacific Aviation consultancy.
He said airlines face a “severe
shakeout” if extremely high fuel prices continue, with the
industry already coping with the fallout from a US-led global
economic slowdown.
“Carriers will be exiting the
market,” Sabudin said. “The weaker ones will go, and stronger
carriers will shrink in size, if we see prices where they are above
$120 beyond the summer peak.”
Shukor Yusof, an aviation analyst
with Standard & Poor’s Equity Research, said most carriers had
not factored in prices at such “stratospheric” levels— and
that they were now not moving quickly enough in response.
“Few Asian airlines are
reacting, in our view, adequately and aggressively enough to the oil
shock and the devastation soon to follow,” Shukor said.
If prices continue rising and hit
$150 a barrel or even higher, he said, “expect to see a rash of
Asian carriers grounded and go bust.”
The International Air Transport
Association (IATA), which had predicted an industry profit of $4.5
billion this year, is now projecting a loss of $2.3 billion.
The IATA, which represents more
than 200 carriers that account for 94 percent of global traffic,
says that every one-dollar rise in oil prices will increase
airline-operating costs by $1.6 billion annually.
Airlines already expected to pay
about $176 billion for fuel expenses this year based on oil prices
of $106.5 a barrel, said IATA, adding fuel accounts for 34 percent
of operating costs.
Overall, analysts say, it is the
worst crisis to hit Asia’s aviation industry since the
pneumonia-like Severe Acute Respiratory Syndrome killed almost 800
people in 32 countries in a 2002 to 2003 outbreak.
The health scare led to a massive
slump in regional travel as well as financial losses for major
carriers including Japan Airlines Group, China Airlines of Taiwan,
and Singapore Airlines (SIA).
To deal with the crisis, SIA
slashed capacity by 30 percent while Philippine low-cost carrier
Cebu Pacific suspended its route to Singapore.
In the face of the current
situation, some regional carriers have begun to replicate the
cost-cutting measures rolled out by US airlines trying to cope with
the steep oil price rise.
Australian flag carrier Qantas
announced plans last month to slash domestic capacity by 5 percent,
cut payroll, and retire several aircraft. The airline also reduced
service to Asia.
Thai Airways said last Friday it
is canceling its direct flight from Bangkok to New York, starting
July, and selling four planes used on that route.
Malaysia Airlines said it would
freeze recruitment and was considering axing more routes as part of
cost-cutting measures triggered by rising fuel prices.
Besides their financial reserves,
the strategies adopted by Asian carriers will determine whether they
can survive this latest crisis, said Jason Pereira, a senior
associate with Las Vegas-based Globalysis consultancy.
“It is a combination of
financial reserve strength and smart strategy that will see some
airlines come out on top,” said Pereira, who monitors the region
from Singapore.
Some analysts say the region’s
low-cost carriers are more vulnerable to rising oil prices because
they are typically managed on a tight budget.
Tiger Airways and AirAsia, two
leading budget airlines in Southeast Asia, have both said will
survive the turbulence—and even emerge stronger.
“Profits are obviously going to
be affected when oil triples in price but I take a very different
approach,” said Tony Fernandes, group chief executive of AirAsia,
which pioneered regional low-cost travel.
“We think the time is to grow
now,” he told Agence France-Presse. “There is a limit to what
you can cut” in terms of costs.
Tiger Airways Chief Operating
Officer Steve Burns said the carrier keeps costs to a minimum and is
confident it can weather the fuel price onslaught.
“What we focus on is to be as
lean and as efficient as possible,” he said.
--AFP
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