Asia airlines strive for return to mediocrity

[HONG KONG] Airlines in South-east Asia are striving for a return to mediocrity. Tragedy and political upheaval provide a chance for Malaysia Airlines and Thai Airways to restructure deeper than before. The state shareholders of the two similarly sized loss-making national carriers are backing reform after crisis hit. Yet, the problem is widespread. Even when in good shape, running an airline in an oversupplied region is a tough business.

Malaysia Airlines was already battling falling ticket sales after one of its flights en route to Beijing disappeared without a trace five months ago. The missile that brought down MH17 in Ukraine last Thursday may push its finances over the brink. The airline will almost certainly need a capital injection by next year. Thai Airways, meanwhile, saw its passenger numbers slump 31 per cent year-on-year last month after the military took power in the country. It is highly leveraged too, with net debt to reach 9.5 times its Ebitda this year, according to Eikon estimates.

Airlines in the region already face intense competition, especially from low cost carriers such as AirAsia, which as a group have almost 60 per cent market share by capacity. South-east Asia is the only part of the world where airlines have more planes on order than in their fleet, according to the Centre for Asia Pacific Aviation. Nearby Middle Eastern carriers backed by rich governments are expanding rapidly too. At the same time, oil prices have kept costs high.