[Photo: Rockstarassi]
The biggest news from the airline industry lately that really impacts us is not the Air France AF447 plane disaster but the sombre news from the International Air Transport Association (IATA) of an expected US$9 billion loss for the year 2009. Of course, some of us will be freaked out that a small speed sensor on a big plane may possibly be the cause of an air disaster. That will send shivers down our spines for sure, but statistics has shown that sitting on an air plane from point A to B should still be pretty safe and an accident is quite remote. A US$9 billion loss is much more certain to happen, relatively. Who among us are still holding on to stakes in airlines?
“A US$ 9 billion loss is much more certain to happen, relatively. Who among us are still holding on to stakes in airlines?”
More certain, really? Yes. In Asia, we have our fair share of bad news that will “help” to fulfil IATA’s forecast. Air China announced on 2 Jun that it will inject US$63 million into Air Macau to keep it barely afloat while Air China itself is hoping for a government rescue. Reuters reported on 11 Jun that China Eastern has set up a task force to merge with Shanghai Airlines. How useful the merger will be remains to be seen because both airlines are not doing well separately and a merger is not likely to solve their problems. The top 3 airlines in China (Air China, China Eastern & China Southern) already lost more than US$4 billion in 2008. Why are we not surprised that they will help to contribute a big chunk of the US$9 billion loss in 2009?
Elsewhere in Asia, even well-managed airlines are not spared. Cathay Pacific reported back in March its first loss in 10 years of HK$8.56 billion. Closer to Singapore, a report by RHB Research estimated that Malaysia Airlines (MAS) is expected to lose RM1.7 billion in the first quarter of 2009, despite the continuing presence of managing director Idris Jala, who turned around MAS from the same level of loss back in 2005. A case of back to square one? Even Singapore Airlines has cut capacity by 11% since February as it tried harder to fill up premium seats that used to bring in the profits. Maybe the all-business class service between Singapore and New York since May 2008 wasn’t such a great idea after all. To top it off, AirBus only managed to meet 10% of its target sales order for 2009 so far.
“Despite these gloomy news, there are pockets of sunshine. Lufthansa continued to report a profit for 2008…”
Despite these gloomy news, there are pockets of sunshine. Lufthansa continued to report a profit for 2008, with a small 1.7% drop in operating profit. Many budget airlines are still expanding in Asia, with the likes of AirAsia, JetStar and Tiger Airways still expanding their respective air links around Asia. The Middle East has also just started its first budget airline, flydubai. Is there anything we can learn from all this?
Yes, one of the key lessons for us is the presence of good investment opportunities even in the airline industry that will perform poorly overall. There is no need to shun all airlines completely and there is no need to stay away from all markets during recessions. In fact, more opportunities present themselves during market downturns because the companies and other assets you can invest in are less likely to be overpriced. For those with sharp minds, keep a lookout for good buys and stay on top of news.
Over at CashBench, we help you follow the headlines by highlighting the top news stories from the Asian editions of the major news services. You can find these on the sidebar to the right of this page. Headlines are refreshed continuously, so keep yourself updated as often as you wish.
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