More people are travelling by air

PETALING JAYA: A rebound in passenger air travel including premium travel in many markets globally is evident but airlines are not likely to rush to add capacity as uncertainties over the sustainability of the global economic recovery and worries of the Influenza A (H1N1) pandemic still looms.

Traditionally, it took about six months for airlines to recover from the bottom and if the second quarter were any benchmark, the recovery should be fast, said an expert. But historically, the fourth quarter is a peak period.

“The signs are there and some airlines are seeing some encouraging forward bookings but these are still early days to cheer over a recovery as airlines are still operating in a tough environment,” said an industry expert.

The region’s major airlines – Singapore Airlines, Cathay Pacific and Malaysia Airlines (MAS) – are seeing encouraging forward bookings and to some extent, a return of travellers to the premium segment.

Yields will continue to come under pressure and rising cost, especially the price of jet fuel, will remain a concern for airlines going forward.

Yields have been severely depressed due to airlines discounting fares in an effort to stimulate demand.

A Reuters poll showed that crude oil is expected to rise to an average of US$75.40 a barrel in 2010.

But at any sustainable sign of recovery, airlines are going to rush to raise fares to restore profitability and that means the cost of travel will go up again.

MAS managing director/CEO Tengku Datuk Azmil Zahruddin at the airline’s financial result briefing last Wednesday said the “airline will soon need to boost its bottomline as the (fares) current low levels are not sustainable in the long term.”

Despite that, MAS has to offer “competitive and compelling fares” to keep up with rival AirAsia Bhd.

Unlike full service carriers that have been forced to cut capacity since the onslaught of the economic crisis, some low-cost carriers have emerged big winners in the crisis.

AirAsia has expanded aggressively during the crisis and will continue to give its full service rivals a run for their money in the markets which it operates.

“The economic crisis may have seen carriers facing arguably the most difficult environment in recent memory, but AirAsia saw vast opportunities to grow our business,” AirAsia group chief executive officer Datuk Seri Tony Fernandes said recently.

He said the airline would continue with its expansion and launch several new routes over the next 12 months, including to several Indian cities.

He said based on the forward booking trend, the underlying passenger demand in the fourth quarter was positive for the airline.

Fuel cost will remain a major concern for airlines and MAS suffered a net loss of RM300mil in the third quarter ended Sept 30, mainly because of wrong-way bets on fuel prices.

According to the International Air Transport Association (IATA), the industry is forecast to lose US$11bil this year, and about US$3.8bil next year.

So that means airlines will continue to lose money even if there is a recovery next year as rebuilding yields may take a while.

IATA has 230 member airlines and the association will review its financial forecast in mid December.

Near home, the figures released recently by the Association of Asia Pacific Airlines (AAPA) showed its 17 member airlines carried 11.1 million passengers in October and this was a slight improvement from September but still below levels seen a year ago.

AAPA was reported to have said that it was “unsure whether signs of a fragile recovery in passenger and cargo volumes will prove to be sustainable.”