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Southeast Asia airline sector endures a rough and unprofitable 2014 but outlook for 2015 is brighter

Challenging market conditions and overcapacity have taken a huge toll on Southeast Asia’s airline sector. An overwhelming majority of the region’s airlines were unprofitable in 2014 across both the low-cost and full-service models.

Only seven of Southeast Asia’s 18 publicly traded airlines or subsidiaries/affiliates that report financial results were profitable on an operating basis in 2014. Combined, this sampling of 18 airlines incurred operating or EBIT losses of nearly USD1 billion in 2014 compared to a slight profit of about USD150 million in 2013.

The big year-over-year swing is a reflection of the challenging market conditions throughout the region as it metamorphoses. Of the 18 airlines in this sampling, only six achieved improved operating figures in 2013, including four from the Philippines.

Southeast Asia’s airline sector was generally in the red in 2014

Of the 18 publicly traded airlines or subsidiaries/affiliates in Southeast Asia which report financial results, five saw a reduction in operating profits in 2014 – Bangkok Airways, Malaysia AirAsia, Singapore Airlines (SIA), SIA regional subsidiary SilkAir and Thai AirAsia. Another four saw their operating losses widen – Indonesia AirAsia, Malaysia Airlines (MAS), Tigerair Singapore and Thai Airways – and three swung from a profit to a loss – Garuda Indonesia, Nok Air and Malaysia AirAsia X.

The six which improved profitability were Cebu Pacific, Philippine Airlines (PAL), Philippines AirAsia, Tigerair Philippines, Garuda Indonesia budget subsidiary Citilink and SIA Cargo. The latter four remained in the red while Cebu Pacific managed an improvement in profits and PAL was the only airline to swing from a loss to a profit.

Asia airline sector operating profit/loss or EBIT (in USD) by carrier: 2014 vs 2013

Rank Airline  Country 

           2014

operating result 

         2013

operating result 

1. Malaysia AirAsia Malaysia   $261m profit $293m profit 
2. Singapore Airlines  Singapore   $166m profit $197m profit 
3. Cebu Pacific  Philippines   $97m profit $57m profit 
4. Bangkok Airways^ Thailand  $49m profit $82m profit
5. SilkAir  Singapore   $24m profit $43m profit 
6. Thai AirAsia  Thailand   $9m profit $74m profit 
7. Philippine Airlines  Philippines   $7m profit $283m loss 
8. Nok Air  Thailand   $13m loss $36m profit 
9. Citilink  Indonesia   $14m loss $60m loss 
10. Tigerair Philippines Philippines  $19m loss $54m loss
11. Philippines AirAsia  Philippines   $22m loss $29m loss 
12. SIA Cargo Singapore  $37m loss $87m loss
13. Indonesia AirAsia Indonesia  $48m loss $12m loss
14. Tigerair Singapore Singapore  $64m loss $6m loss
15. AirAsia X Malaysia  $67m loss $10m profit
16. Malaysia Airlines^ Malaysia   $303m loss* $107m loss* 
17. Garuda Indonesia Indonesia  $419m loss $86m profit
18. Thai Airways^ Thailand  $523m loss $95m loss
  TOTAL   $916m loss $145m profit

The Philippines was an exception, led by a huge improvement at PAL

Four of the six airlines which saw profits improve are based in the Philippines, which bucked the general trend in the region as market conditions improved. The Philippine market benefitted from consolidation and capacity reductions while overcapacity plagued all the other major markets in Southeast Asia.

The consolidation included the early 2014 acquisition by Cebu Pacific of Tigerair Philippines, which Cebu Pacific was able to quickly turn around. Tigerair Philippines incurred a net loss of only USD4 million between 20-Mar-2014, the date the acquisition closed, and 31-Dec-2014. The LCC incurred a loss of about USD54 million in 2013 and a loss of about USD15 million in the first 80 days of 2014, based on figures from the Singapore-based Tigerair Group.

Philippines AirAsia acquired Zest in 2013 and the two carriers are now in the process of merging. The AirAsia Group is confident its Philippine operation can turn the corner in 2015 after narrowing losses in 2014. (Note: Philippines AirAsia financial figures include Zest.)

But by far the biggest improvement in the Philippine market and Southeast Asia overall has come at flag carrier Philippine Airlines. PAL, the last of Southeast Asia’s publicly listed airlines to report results for 2014, recently posted an operating profit of USD7 million for 2014 compared to an operating loss of USD283 in 2013. CAPA will take a detailed look at the Philippine market in an upcoming series of analysis reports, produced for CAPA Members.

Indonesia, Thai and Malaysian markets impacted by challenging conditions

Of the five main Southeast Asian markets, only the Philippines managed an improvement in market conditions and profitability in 2014. The airline sectors in Indonesia, Malaysia and Thailand were all unprofitable in 2014 after posting profits in 2013. The Singapore airline sector was profitable in 2014 but only modestly and saw a drop compared to 2013.

Thailand was set back by a prolonged period of political instability, which significantly impacted inbound demand, while Indonesia was impacted by the depreciation of the Indonesian rupiah, weaker economic growth and a presidential election. In Malaysia, the MH370 and MH17 incidents contributed to a weaker demand environment. Singapore saw a slowdown as it relies heavily on all three of these markets as well as China, which saw a large drop in outbound visitor numbers across Southeast Asia.

See related report on Southeast Asia's 2015 outlook from Airline Leader: LCC growth slows and flag carriers look to restructure but long-term prospects remain bright

Meanwhile capacity continued to be added into the market. Several airlines responded to the challenging market conditions by slowing expansion through a combination of delivery deferrals, subleases or aircraft sales and reduced utilisation rates. But most of these adjustments were not implemented until 2H2014. The result was overcapacity in most of the Southeast Asia’s main markets for most of the year.

Southeast Asian LCC sector suffered from overcapacity in 2014, as "strategic" expansion occurred

The LCC sector particularly became oversupplied. Of the 22 LCCs that operated in Southeast Asia in 2014 only about about five were profitable. These include three publicly listed carriers – Cebu Pacific, Malaysia AirAsia and Thai AirAsia – as outlined above.

LCCs which were unprofitable include the seven outlined in the earlier chart – Citilink, Indonesia AirAsia, Malaysia AirAsia X, Nok Air, Philippines AirAsia, Tigerair Philippines and Tigerair Singapore. Jetstar Asia, Scoot, Thai AirAsia X (TAAX) and Tigerair Mandala were also unprofitable.

Full year CY2014 figures for Singapore-based Jetstar Asia and Scoot are not available as they only report annual figures based on their fiscal years ending 30-Jun and 31-Mar respectively. Both Jetstar Asia and Scoot were unprofitable in their most recent fiscal years and were certainly also in the red for CY2014. Jetstar Asia stated it was back in the black in 4QCY2014 but as it incurred losses the other three quarters due to overcapacity in the Singapore market it ended the year in the red.

TAAX launched services in Jun-2014 and reported its first monthly profit in Dec-2014 but had an undisclosed loss for the full year. Indonesia-based Tigerair Mandala ceased operations in early Jul-2014 and incurred a net loss of about USD100 million in 1H2014. 

Tigerair Mandala was the only Southeast Asian LCC to exit the market in 2014 while TAAX was the only start-up to launch. Three new LCCs however have launched or are launching scheduled services in 1H2015 – Indonesia AirAsia X, NokScoot and Thai VietJet Air.

Full-service airlines have also struggled, even as capacity levels remained flat

There were more than 40 full-service passenger carriers operating in Southeast Asia in 2014, including regional operators. CAPA estimates that fewer than 10 of these carriers were profitable in 2014, including Bangkok Airways, PAL, Singapore Airlines and SilkAir (as outlined in the chart).

A third Southeast Asian flag carrier, Vietnam Airlines, was also probably profitable but has not yet published final figures for 2014. Vietnam Airlines pursued an initial public offering in Nov-2014 but has not been formally listed on a Vietnamese stock exchange.

In its pre-IPO prospectus Vietnam Airlines reported an operating profit at the parent airline for 2013 of VND539.241 billion (USD26 million). The group’s two airline subsidiaries, LCC Jetstar Pacific and Cambodian full-service flag carrier Cambodia Angkor Air, both posted losses in 2013. Jetstar Pacific and Cambodia Angkor Air likely remained in the red while the group overall was initially projecting a slightly increase in profits for 2014.

Most of Southeast Asia’s smaller carriers are based in Indonesia and Thailand, where market conditions were extremely challenging in 2014. Myanmar also has a large number of airlines – nine in 2014 with two more launching in 1H2015 – but none is believed to be profitable.

Outlook for 2015 is more encouraging; fuel costs will provide a boost - or not

The outlook for 2015 is brighter. Market conditions began improving in 2H2014. Most of the losses booked for 2014 were incurred in the first half of the year

See related report: Southeast Asian airlines: 80% were unprofitable in 1H2014 but conditions are starting to improve

The region’s airlines will start reporting over the next few weeks financial figures for the three months ending 31-Mar-2015. More rational capacity levels and the reduction in oil prices should result in improvements to the bottom line, particularly compared to a weak 1Q2014.

Conditions could improve further in 2H2015 as expected capacity cuts at two of the main flag carriers, MAS and Thai Airways, are implemented. But overcapacity concerns linger in certain markets. For example, airlines are continuing to add capacity at a rapid clip and compete aggressively in the Thai domestic market.

See related report: Competition in Thailand’s domestic LCC sector intensifies further as Thai Lion, Nok & AirAsia expand

More capacity adjustments and consolidation may be needed for the Southeast Asian airline sector to return to the profit levels of a couple years ago. 2014 was an extremely challenging year. The sector has passed through the eye of the storm but some turbulence remains.

As most airlines emerge from more expensive fuel hedges, the impact of substantially lower fuel costs will feed through and should deliver a much needed boost to the bottom lines of many airlines. The only caveat here is whether the positive revenue impact will be offset by discounting and a new round of capacity expansion.

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