- Another 15% increase in oil price could put Nok and several carriers out of business;
- V Australia’s plans to launch Brnsbane-LA services appears brave;
- Likely to be low yielding operation, but likely to steal more of Air NZ’s business.
Nok Air’s ebullient CEO, Patee Sarasin, has said if oil reaches USD170 a barrel, “I am better off selling noodles”. The Thai budget carrier has won a reprieve from shareholders to keep operating, but as a shadow of its former self. Half of the airline’s fleet will go and it will finally work with 39% owner, Thai Airways, to stop competing against the flag carrier and undermining its prices.
Nok’s outlook is tenuous. Another USD20-30 per barrel rise (15-20%) in the price of oil could put it – and a lot of other carriers – out of business. Given the trajectory of price in the past 12 months, another 15-20% rise is within the realms of possibility – and could come quite quickly.
Which is why V Australia’s announcement to launch more trans-Pacific services – from Brisbane to the US – early next year looks very brave. Qantas launched three times weekly non-stop Brisbane-Los Angeles service in Jun-04, which has since been upgraded to daily from Mar-08 as V Australia's launch approached. Qantas’ dominant position and stranglehold on the corporate traveller market could make V Australia’s three times weekly operation a low yielding affair, but the alternatives for utilising its expanding B777-300ER fleet may not be much brighter (the airline had earlier stated it could launch operations to North Asia as more B777s enter the fleet).
V Australia’s expansion at Brisbane will however further erode Air New Zealand’s one-stop Australia-US market that connects over Auckland and is expected to come under the broader marketing alliance V Australia reached with Northwest Airlines for the Sydney-LA service commencing in Dec-08.
Both moves by V Australia and Nok Air signal that airlines still believe (or hope) a fall in the price of oil is imminent. The opposite seems more likely. All bets are off for the airline industry if crude goes beyond USD170 per barrel. And meanwhile, as food prices push ever higher, Patee Sarasin might have just as much trouble selling noodles.
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