Sky-high fuel prices shake up Asia's private airlines

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Sky-high fuel prices shake up Asias private airlines

JAKARTA/KUALA LUMPUR - With oil prices above 100 dollars a barrel this year, airlines with the most fuel-efficient fleets have an obvious advantage.

By (DPA)

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Published: Mon 25 Aug 2008, 1:13 PM

Last updated: Sun 5 Apr 2015, 11:30 AM

With oil prices above 100 dollars a barrel this year, airlines with the most fuel-efficient fleets have an obvious advantage.Asia's established national carriers have the edge over their private competitors in terms of strong shareholders - mostly Asian governments - and good balance sheets, with easy access to money to spend on the newest, fuel-efficient aircraft. But they are not the only ones keeping Boeing and Airbus busy this year.

AirAsia, South-East Asia's largest no-frills airline, is currently Airbus's biggest customer for the fuel-efficient A320. AirAsia has placed an order for 175 A320s, 50 of which will be operational by 2013, unless the company flies into serious financial problems before then.

In 2007, AirAsia reported a pretax profit of 79 million dollars on revenue of 458 million dollars. Its mid-year performance in 2008 is expected to be less rosy, but industry experts commend the company for investing in fuel efficiency at a time of record-high oil prices.

'The people who suffer when oil prices spike like this are the ones with old aircraft,' said Andrew Herdman, director general of the Association of Asia-Pacific Airlines (AAPA). 'The beneficiaries are airlines that have got young fleets with highly fuel-efficient modern aircraft.'

That works for both national carriers and budget airlines.

In Europe, the no-frills survivors this year have been Ryanair and Easy Jet. In Asia, the seeming success stories are Malaysia's AirAsia, Singapore's Tiger and maybe Indonesia's Lion Air, according to Herdman.

Budget carrier Tiger Airways reported a net profit of 27 million dollars in the fiscal year that ended in March despite the soaring fuel costs.

It was the first profitable year since Tiger launched in 2004.

There have already been some no-frills losers this year.

Hong Kong's Oasis, which operated two fairly old Boeing 747s between the former British colony and London, went into voluntary liquidation on April 9, laying off 700 employees and leaving 30,000 passengers holding tickets valued at 38.5 million US dollars.

The airline blamed its demise on high oil prices and a failure to purchase the proper aircraft.

Thailand's One-Two-Go and Indonesia's Adam Air both shut down operations this year, although the reason may have had as much to do with their poor safety records as high fuel costs.

The Philippine's budget carrier Cebu Pacific Inc suffered a small loss of 348,000 dollars in the first half of 2008, but the airline is in the midst of upgrading its fleet with more economic Airbus A320s and A319s.

Indonesia, a vast archipelago nation, has seen its air traffic grow an average of 20 per cent during the past five years, driven by by strong domestic demand and the deregulation of the sector that has given birth to an estimated 50 airlines.

Unfortunately, aviation safety standards have not kept up with the proliferation of airlines.

Numerous fatal accidents, such as the Adam Air New Year's Day 2007 crash in the sea off the western coast of Sulawesi, which killed all 102 people on board, followed by a Garuda Indonesia jetliner three months later in central Java city of Yogyakarta that killed at least 21 people - have tarnished Indonesia's safety record.

Safety concerns prompted the European Union to ban all Indonesian airlines from operating in its territory.

One positive impact of the ban was the enforcement of stricter requirements on the country's plethora of airlines.

In addition to closing down Adam Air, once one of Indonesia's fastest-growing budget airlines, the transport ministry this year also grounded nine other airlines. It revoked licenses of four carriers and suspended five others for failing to improve their safety records. Indonesia is now down to 20 scheduled airlines.

Lion Air, the country's largest private domestic carrier, is buying 178 fuel-efficient Boeing 737-900ER, of which 12 have already been delivered. The firm expresses confidence in both the domestic and international market despite the sky-high fuel prices.

'There is a very positive outlook for airlines with fuel-efficient modern fleets,' said Hasyim Arsal al-Habsi, Lion Air's spokesman.

Prospects are particularly good in Indonesia, where air-safety fears pale in comparison to the mayhem on the roads and frequent accidents at sea.

'Indonesia is a vast archipelago nation, and air transportation is the most feasible facility,' Arsal said.

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