Budget airlines seek to boost aircraft haul
Southeast Asia’s budget airlines would see their collective fleets expand at a faster pace in 2017, after growth in this area hit a “low point” last year in the wake of overcapacity concerns, CAPA-Center for Aviation said.
CAPA, which provides aviation market intelligence, said in a report this week the region’s 21 low cost carriers (LCCs), led by giants such as Air Asia, Lion Air and Cebu Pacific Air, ended 2016 with a total of 623 planes. That was higher by 7 percent, or 41 aircraft, over the previous year.
Budget airlines added 67 planes in 2015 while the collective fleet expanded by 61 planes in 2014.
For 2017, Southeast Asia’s budget airline fleet is forecast to grow by 80 aircraft, or 11 percent over last year.
Among these, the Gokongwei family’s Cebu Pacific was planning a “modest” expansion of two planes this year.
“Market conditions in the Philippines could support faster growth, but Cebu Pacific is waiting for the A321neo before accelerating its rate of growth. The group’s fleet plan includes eight additional aircraft in 2018, driven by the A321neo,” CAPA said.
“Overcapacity continues to persist in several Southeast Asian markets, but some LCCs are reaccelerating expansion in 2017,” CAPA said in its report. “Given the sector’s huge order book, it is likely 2016 will represent the low point in Southeast Asian LCC fleet growth.”
Carriers have been seeking to control capacity growth also as the industry’s penetration rate, or its market share versus full service carriers (FSCs), declined for a second year in 2016. This figure stood at 53 percent as FSCs added short haul capacity at a faster rate than budget airlines.
“The LCC penetration rate within Southeast Asia should start to inch back up in 2017 as the rate of fleet expansion accelerates. The narrow body growth rate in 2017 will be significantly higher compared to 2016, and similar to the growth rate achieved in 2015,” it added.
CAPA warned a more aggressive fleet expansion would have an impact on the bottom line.
“The fundamentals of the Southeast Asian market remain attractive, with economic and middle class growth driving demand growth,” CAPA said. “However, the risk is that capacity will again grow faster than demand as LCCs reaccelerate growth and pursue more strategic expansion.”
“Already, low yields will be further pressured as competition further intensifies—both between LCCs and with FSCs—impacting profitability, particularly if fuel prices start to increase again,” it noted.
It said market conditions were already “tough” last year, when fleet expansion fell to the single-digit growth realm.
“As the region’s LCCs significantly accelerate their rate of fleet growth in 2017 it could become increasingly difficult to find markets for the additional aircraft, exacerbating the overcapacity situation and impacting profitability,” CAPA said.