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Analyst Viewpoint: Asian airline industry overview Singapore, 26 March 2014
Brendan Sobie Chief Analyst
The big picture
• The rise of Asia • The rise of LCCs in Asia • Rapid growth in Southeast Asia • The risk of overcapacity • Financial health • The outlook
Asia: top 12 markets
Source: CAPA - Centre for Aviation, OAG and IMF
Asia: top 10 airports
Source: CAPA - Centre for Aviation and airport reports
Asia’s top 10 airports, 2013
Source: CAPA - Centre for Aviation and airport reports
Asia’s fastest growing airport in 2013 KLIA annual passenger traffic, 2008 to 2013
Source: CAPA – Centre for Aviation and company reports
Malaysia: rapid growth KLIA monthly passenger traffic compared to HKIA and Changi, 2010 through 2013
Source: CAPA – Centre for Aviation and company reports
Malaysia: rapid growth (Malaysia) AirAsia passenger traffic: 2008 to 2013
Malaysia Airlines passenger traffic: 2008 to 2013
Source: CAPA – Centre for Aviation and company reports
Thailand: rapid growth
Source: CAPA – Centre for Aviation and company reports
Annual passenger traffic for Thailand’s four largest airports
Thailand: rapid growth
Source: CAPA – Centre for Aviation and company reports
Annual passenger traffic for Thailand’s three largest carriers
Myanmar: rapid growth
Source: CAPA - Centre for Aviation and Myanmar DCA
Myanmar annual international passenger traffic and growth: 2010 to 2013
Myanmar: rapid growth
Source: CAPA - Centre for Aviation and Myanmar DCA
Yangon airport annual passenger traffic: 2008 to 2013
The Rise of Asia: Global in-service fleet
Source: CAPA Fleet Database Note: as of March 2014
The rise of Asia: Global orders by region
Source: CAPA Fleet Database Notes: as of March 2014 excludes orders placed by lessors which have not yet been assigned to an operator
Southeast Asia fleet and order book
Source: CAPA Fleet Database Note: as of March 2014
The rise of Asia: Asia-Pacific orders by airline
Source: CAPA Fleet Database Notes: as of March 2014 Some of the AirAsia, Lion and VietJet orders will end up at their overseas affiliates
Global LCC orders by region
Source: CAPA Fleet Database Notes: as of March 2014 excludes orders placed by lessors which have not yet been assigned to an operator
Rapid growth of LCCs in Asia
Rapid growth of LCCs in Asia
Source: CAPA – Centre for Aviation and OAG
LCC Capacity Share (% of seats) within Asia-Pacific, 2001 to 2M2014
Rapid growth of LCCs in Asia
Source: CAPA – Centre for Aviation and OAG
LCC Capacity Share (% of seats) within Southeast Asia, 2001 to 2M2014
Lion Air Group projected deliveries
Source: CAPA Fleet Database Note: as of Mar-2014; for 2014 deliveries for remaining 10 months are depicted
Rapid growth of LCCs in Asia
AirAsia Group projected deliveries
Source: CAPA Fleet Database Note: as of Mar-2014; for 2014 deliveries last 10 months are depicted
Rapid growth of LCCs in Asia
Source: CAPA – Centre for Aviation Note: Notes: Nok Air fleet includes for all years Saab 340s which are operated by a regional partner which is now in the process of being acquired by Nok. Orient Thai fleet only includes those aircraft in scheduled LCC operation (737 Classics). Most of its fleet is used for charters. Valuair still operates flights between Singapore and Indonesia but since 2013 has shared aircraft with parent Jetstar Asia. Therefore it no longer has its own aircraft.
Low-cost carriers in SE Asia
Low-cost carriers in Asia Pacific
Source: CAPA – Centre for Aviation Notes: Affiliation with FSC groups listed in parenthesis only for carriers that are not affiliated with an LCC group. *Spring, AirAsia X, Nok and VietJet currently only have one carrier but are planning additional affiliates in 2014 ; ^Valuair continues to operate as a Jetstar Asia subsidiary using its own AOC but shares aircraft with Jetstar Asia; **Nok Air fgures include five Saab 340s which are wet-leased from a regional carrier ; ^^Lion Air figure excludes five parked 737-400s
LCCs in Asia-Pacific launching in 2014
Other potential launches: AirAsia in Japan and Korea for up to 13!
Source: CAPA – Centre for Aviation
Rapid growth of LCCs in Asia: Legacy carriers respond
• Singapore Airlines with Scoot, Tigerair and SilkAir • Thai Airways with Nok, NokScoot and Thai Smile • Philippine Airlines with PAL Express • Malaysia Airlines with Malaysia Airlines & Firefly • Garuda with Citilink and Garuda Explore • Cathay Pacific with Dragonair • ANA with Peach and Vanilla • JAL with Jetstar Japan • China Airlines with Tigerair Taiwan
Signs of overcapacity in LCC sector • Tigerair Singapore reported 9.8 point decline in load
factor and 16% drop in average fare in 4Q2013 as it slipped back into the red
• Average fare at Malaysia AirAsia dropped by 18% in 4Q2013; at Thai AirAsia by 13%; and Indonesia AirAsia by 11%. AirAsia load factors were steady or slightly up but profits were down
• Yields at regional full-service operators impacted too. SilkAir’s yield was down 10% in 4Q2013 and load factor down 5.3 points as profits were down 83%
Signs of overcapacity Malaysia-Australia total one-way seat capacity: Sep-2011 to Sep-2014
Source: CAPA – Centre for Aviation & OAG
Signs of overcapacity in LCC sector • AirAsia has deferred seven A320 deliveries in 2014
and 12 in 2015. It is also selling six A320s this year • AirAsia is reducing the size of its Philippines fleet in
2014. Indonesia AirAsia is taking a hiatus from fleet growth in 1H2014 and perhaps for the full year
• Tigerair has cancelled seven A320s that were to be delivered in 2014 and 2015
• Tigerair Mandala is taking a hiatus from fleet growth in 2014 and suspended 10 of 19 routes in 1Q2014
• Jetstar Asia has suspended fleet expansion • More aircraft deferrals and capacity adjustments in
Southeast Asia are likely
ASEAN open skies: no relief • ASEAN is slated to implement open skies in 2015 but
the impact will be limited • LCCs have already worked around the system by
establishing cross-border JVs. As they already account for almost 60% of capacity within ASEAN, they have already succeeded at penetrating the market beyond the levels seen within the EU (40%)
• Slot restrictions at major airports have become the impediment to growth rather than lack of open skies
• Open skies will be limited anyway as no cabotage will be allowed. There benefits are also limited as some countries have not signed all the protocols
Rapid rise of LCCs in Asia: Low-cost, long-haul
• Jetstar (2006) • AirAsia X (2007) • Scoot (2012) • Cebu Pacific (2013) • Thai AirAsia X (2014) • Indonesia AirAsia X (2014) • NokScoot (2014) • VietJet (?)
Rapid rise of LCCs in Asia: Low-cost, long-haul
AirAsia X fleet plan: end-2013 to end-2019
Source: AirAsia X
The rise of LCCs in Asia: takeaways • LCCs will continue to drive rapid growth in Asia • But signs of overcapacity and over-ordering are
starting to emerge • Consolidation is inevitable as the number of LCCs
operating in the region approach 60 • The smaller independent LCCs are the most
vulnerable but there also could be some changes at the smaller subsidiaries of the big groups
• There is still room for LCC penetration in the medium/long-haul market
• Full-service airline groups will continue to be impacted but are also participating in the LCC boom
Asia: IPOs in 2013
• Nok (June-USD118 million) • AirAsia X (July-USD310 million)
• Bangkok Airways • Indonesia AirAsia • Vietnam Airlines Should generate about USD1 billion, most of which will be used to fund fleet expansion
Asia: IPOs for 2014
Asia: industry financial health • Region’s strongest performers, AirAsia Berhad,
Singapore Airlines, saw profits slip in 2013 • Thai Airways was back in the red and Qantas
incurred a loss in 2H2013 • Losses at MAS loss tripled in 2013 • Tigerair Singapore and Cebu Pacific was in the
red in 4Q2013
Asia-Pacific: top 25 FSCs and LCCs
FSCs: 14 from North Asia; only 5 from SE Asia
LCCs: 13 from SE Asia; only 8 from North Asia
based on weekly seat capacity for Mar-2014
Asia: potential risks for airlines
• Fuel prices • Economic slowdown • Too many aircraft ordered • Access to capital • Pilot shortages • Bankruptcies
Final takeaways
• Partnerships and costs have become the key business drivers
• Airlines are finally getting rid of legacy thinking • Airlines are considering new business models
(LCC subsidiaries, long-haul low-cost etc) • Consolidation can be a successful formula • Market fundamentals remain favorable in
Southeast Asia. The demand is there. But there is a risk of overcapacity. The prevailing theme for 2014 will be aggressive competition between all types of carriers and a lot of red ink
