FILIPINO carriers bucked the general trend in the airline industry in the Asean last year, as market conditions in the Philippines improved due to mergers and resource rationalization, an aviation think tank said in an analysis.
The Philippine market benefited from consolidation and capacity reductions, while overcapacity plagued all the other major markets in Southeast Asia. This was reflected in the Centre for Asia Pacific Aviation’s (Capa) tally that showed that only seven out of 18 airlines in the Asean posted profits last year, two of which are from the Philippines.
Ranking third was Cebu Pacific, the leading budget carrier in the Philippines. Meanwhile, Philippine Airlines, the country’s flag carrier, rose to seventh place, after swinging into the black from years in the red.
Tigerair Philippines ranked 10th, with a loss of $19 million, while AirAsia Philippines followed at 11th, with a $22-million loss last year.
“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,” the research agency said in a report published on Tuesday.
Combined, the 18 publicly traded airlines—a number of which are subsidiaries of listed carriers—incurred operating losses of nearly $1 billion in 2014, compared to a slight profit of about $150 million in 2013.
“The big year-over-year swing is a reflection of the challenging market conditions throughout the region as it metamorphosed. Of the 18 airlines in this sampling, only six achieved improved operating figures in 2013, including four from the Philippines,” Capa said.
Improving market conditions in the Philippines, brought about by consolidations and capacity reductions, propelled some of the local airlines to greater heights, the think tank noted.
“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 $4 million between March 20, 2014, the date the acquisition closed, and December 31, 2014. The low-cost carrier incurred a loss of about $54 million in 2013 and a loss of about $15 million in the first 80 days of 2014, based on figures from the Singapore-based Tigerair Group,” Capa explained.
AirAsia Philippines acquired Zest Airways 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.
“But by far the biggest improvement in the Philippine market and Southeast Asia overall has come at flag-carrier Philippine Airlines,” the think tank said.
The legacy carrier, the last of Southeast Asia’s publicly listed airlines to report results for 2014, recently posted an operating profit of $7 million for 2014, compared to an operating loss of $283 million in 2013.
Now, despite hitting headwinds last year, these carriers will start seeing better bottomlines in 2015, as market conditions in the region improve from last year.
“The outlook for 2015 is brighter. Market conditions began improving in the second half of 2014. Most of the losses booked for 2014 were incurred in the first half of the year,” Capa said. “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. The year 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 think tank explained.
“The only caveat here is whether the positive revenue impact will be offset by discounting and a new round of capacity expansion,” it said.