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Asia's airline bazaar will help peers fly higher

[HONG KONG] Asia's hangars are full. At least six carriers are all or partly up for sale, from SriLankan Airlines to South Korea's Asiana. The region may be the biggest driver of new demand globally, but low-cost rivals have eaten into market share, and cooler demand has hurt too. Most will not find a buyer and deserve to shrink or close; the survivors will benefit.

The International Air Transport Association estimates passenger numbers will roughly double in the 20 years to 2037, with Asia accounting for more than half of all new travellers. Budget offerings will fuel much of that growth.

It's no accident that three of those for sale are state-controlled. Malaysia Airlines, SriLankan, Air India are indebted and loss-making, weighed down by inefficient fleets and years of government meddling. None successfully embraced budget travel. And even the sway is gone: Air India is number three at home. Flag carriers still have some lustre, perhaps for the likes of Singapore Airlines, which needs to compensate for its lack of a domestic market, or Japan Airlines, hoping for more US traffic.

But Sri Lanka illustrates the depth of the problems: Emirates bought a near 44 per cent stake in 1998, only to walk away a decade later after the relationship with Colombo soured. In 2017, prospective buyers, including private equity firm TPG, said potential returns were just too low. The situation has only worsened: Upstart Indian rivals are eating into profitable routes; April bomb attacks, meanwhile, have dragged tourist numbers to their lowest level since the end of the civil war.

Among the few to have found serious suitors is South Korea's Asiana, with its low-cost subsidiaries, in which a 31 per cent stake is up for sale. Reuters reports bidders include Aekyung, owner of top budget carrier Jeju Air, and hedge fund KCGI, an indirect investor in Korean Air Lines. That could prompt some consolidation at last. It will be harder to find buyers for India's Jet Airways, now in bankruptcy and HNA's Hong Kong Airlines.

Airlines have proved lucrative investments before: private equity firm TPG, after all, made its name with the 1993 buyout of Continental. But Asia has been brutal, and even in saturated markets like South Korea, new budget airlines are still emerging. Buyers should beware.

South Korean Aekyung, a retail to airline group, and activist fund KCGI plan to participate in preliminary bidding for a stake in Asiana Airlines, the country's number two carrier, company officials said on Sept 3. South Korean brokerage Mirae Asset Daewoo will also take part as a financial investor.

A 31 per cent stake in Asiana has been put up for sale by its indebted top shareholder Kumho Industrial.