airlines-brace-for-hard-landing

Airlines brace for hard landing

As Thai Airways requests government support, the regionÆs other airlines prepare for the worst.
Thai Airways' four decades of profits have come to an end. The airline, joining many of its regional and global peers, expects to post a record loss for 2008 û a year marked by volatile fuel prices and a global recession.

Asking ThailandÆs government for a Bt19 billion ($545 million) loan, Thai Airways yesterday joined its Chinese siblings and banks around the world on the government dole. The loans, requested from state-owned banks, are needed to cover operating expenses that the airline will not be able to pay by the end of March, according to Thai Airways chairman Surachai Thansitpong.

Thai Airways saw its business hit drastically by an eight-day closure of BangkokÆs Suvarnabhumi Airport in December and the fall-off in leisure traffic to the popular holiday destination during the peak period. Thansitpong said Thai AirwaysÆ ticket sales are down 30% this month alone.

The airlineÆs shares closed yesterday at Bt6.55, their lowest level since 1992.

And Thai Airways is not alone. ôAsia Pacific [airline] losses will more than double to $1.1 billion, the biggest next year,ö says International Air Transport Association (IATA) director general and CEO Giovanni Bisignani. ôWith 45% of the international cargo market, the drop in freight is hitting hard.ö

While Thai Airways can blame factors outside its control, not least the on-going political turmoil, for its poor performance last year, other airlines cannot.

Cathay Pacific Airways attributes its losses to its massive fuel hedging contracts. In a profit warning published on the Hong Kong stock exchange website earlier this month, Hong KongÆs venerable monopoly airline reported an unrealised mark-to-market loss of HK$7.6 billion ($974 million) as of December 31, 2008. With passenger and cargo numbers also falling û December 2008 passenger traffic was down 0.3% and cargo down 23.9% û the airlineÆs losses are expected to widen.

ô[Most] worrying at the moment is the fall-off in our revenue stream, (which is) already quite pronounced and which we expect may get worse,ö said Cathay Pacific CEO Tony Tyler in an employee newsletter.

Cathay Pacific last reported a loss in 1998. In that year, in the midst of the Asian financial crisis, the airline lost HK$542 million ($69 million). On Monday, Cathay's shares closed three HK cents lower at HK$8.24.

Singapore Airlines, long leading the region in management prowess and profitability, announced last week that it will cut 214 flights, or 3% of its flight schedule, by the end of March. While analysts do not expect the airline to post a loss û Singapore Airlines did not lose money during either the Asian financial crisis or Sars û it did experience a 3.3% drop in December passenger traffic.

Some analysts see Singapore AirlinesÆ schedule cuts as a signal that the economic environment for airlines will worsen significantly. On Monday, the airlineÆs shares closed down S$0.02 at S$11.20.

ChinaÆs airlines have led the way with regard to government support. In December, China Eastern Airlines, the weakest of the countryÆs big three, and China Southern Airlines, the countryÆs largest by passenger count, each received Rmb3 billion ($439 million) in support. In a move that highlights China EasternÆs perilous financial situation, Beijing has given the airline an additional Rmb4 billion in capital this month.

Regional carriers Grand China Express, HNA Group and Shanghai Airlines have also requested capital injections from their respective governments.

Long hailed as the centre for airline growth in Asia, ChinaÆs domestic passenger traffic grew a measly 2.9% in the 11-months to November 2008. Earlier passenger traffic forecasts called for 10% annual passenger growth until at least 2020.

In an effort to stop haemorrhaging money, both the Chinese government and the airlines are making cuts. The Civil Aviation Administration of China has already blocked the creation of new airlines until at least 2010 and in December asked the countryÆs existing carriers to either defer new deliveries or retire old aircraft. China Eastern is expected to reduce delivery of new aircraft to 14 from 29, sell its stake in its Joy Air subsidiary and cut salaries. Tianjin-based Okay Airways suspended operations in December.

Still, Chinese airlines are expected to have lost a record amount in 2008. Air China has already flagged preliminary losses of Rmb6.8 billion and China Eastern expects to have lost Rmb6.2 billion. China Southern has warned of ôsignificantö losses.
¬ Haymarket Media Limited. All rights reserved.

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