Regional budget airlines expected to bulk up fleets
SOUTHEAST ASIAN budget airlines led by AirAsia, Lion Air and Cebu Pacific Air are tipped to expand their fleets this year.
The region’s low-cost airlines will see their collective fleets expand at a faster pace in 2017, after growth in this area hit a low point last year amid overcapacity concerns, the CAPA-Centre for Aviation said.
CAPA, which provides aviation-market analysis, said in a report this week that the region’s 21 low-cost carriers (LCCs) – headed by Air Asia, Cebu Pacific and Lion Air -– ended 2016 with a total of 623 planes. That was 41 more aircraft than in the previous year, a 7-per-cent gain.
Budget airlines added 67 planes in 2015; the collective fleet expanded by 61 planes in 2014.
In 2017, the airline fleet is forecast to grow by 80 aircraft, or 11 per cent over last year’s growth.
Among these carriers, the Philippines’ Cebu Pacific is 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 [Airbus] 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 re-accelerating 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 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 per cent 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 [with] 2016, and similar to the growth rate achieved in 2015,” it added.
CAPA warned that more aggressive fleet expansion would have an impact on bottom lines.
“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 re-accelerate 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 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.
