Thursday, July 3, 2008

Future of aviation industry 'really bleak': MAS CEO

An open letter to customers from the Managing Director and CEO of Malaysia Airlines, Idris Jala, has publicised his dire predictions as to the state of the industry, going as far as forecasting potential collapse.

He claimed that the global airline industry may witness fares rising by as much as half, capacity cut by a quarter, and all of this a looming reality, even with costs cut by a tenth.

Idris pointed to a need for more mergers and acquisitions between carriers, and warned of potential collapse unless ‘drastic’ changes occur, and quickly.

His warning was immensely pessimistic, claiming that more and more airlines were likely to be “forced out of business, while the majority of us are going to bleed red ink yet again.”

The options for the public were gloomy, as Idris projected that the general public would either need to “be prepared to face sharply higher prices for air travel now,” or be prepared to “stomach even higher prices later when the number of participants become fewer and competition fizzles out in favour of consolidation.”

The predictions of the MAS CEO follow the recent changes within the airline, where 30% of flights were placed under the Everyday Low Fares promotion. This promotion effectively offers free fares, where passengers only contribute towards taxes and charges, including a fuel surcharge.

Although the load factors of the flag-carrier have improved through the promotion, it has escalated the fare war between MAS and AirAsia, the region’s most successful and fastest growing airline.

Although MAS is hoping to achieve some regulatory policy adjustments in their favour, this will require winning the hearts and minds of politicians and the public, the Centre for Asia Pacific Aviation reports.

The Association of Asia Pacific Airlines reported international demand growth to actually be accelerating, from the May 2008 international passenger traffic.
AAPA members, including MAS, carried 11.8 million international passengers last month, with RPKs rising 4.7 year-on-year.

This propelled the year-to-date increase to 3.5%, complimented by the improvement in load factor to 72.6%.

The Director General of AAPA, Andrew Herdman, concurred with Idris regarding the difficulties that fuel prices are placing upon airlines.

However, CAPA reports that demand has been remarkably resilient, although Mr Herdman similarly cautioned that airlines are being “severely pressured by the relentless increase in oil prices, and expectations of slower economic growth.”

He added that the weakened consumer confidence “could further dampen the outlook for the rest of the year.”

If route cuts were to continue, it is possible that the dire warnings of Idris could solidify into a harsh reality. However, the publicised distress could do more harm than good for the aviation industry.

Whilst the warnings may prepare travellers to expect higher prices for travel, they are unlikely to assist investor confidence.

In the current era of economic turmoil, investor confidence is likely to play as significant a role as consumer confidence and demand.


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