Cuts are in the air

AIRLINE WOES

SINGAPORE Airlines (SIA) and Cathay Pacific Airways may soon have to go down the path that Qantas took earlier this week when the Aussie carrier slashed its profit forecast and announced 1,750 job cuts, say analysts.

“All airlines in Asia will have to make similar tough decisions,” said Mr Jim Eckes, managing director of industry adviser Indoswiss Aviation. “With traffic falling so rapidly, it’s going to be difficult for many airlines to make a profit.”

Traffic for Asia-Pacific carriers sank almost 13 per cent in February, the steepest decline since June, according to the International Air Transport Association (Iata).

Qantas is examining measures, such as passengers tagging their own bags or checking in via mobile phone, to further cut costs.

“If your top line has fallen off the cliff, then you have to adjust your costs,” said Mr Christopher Wong, a fund manager at Aberdeen Asset Management Asia in Singapore. “Whether it’s cutting headcount or reducing working hours, that’s the only thing airlines can adjust.”

Already, SIA — which gets 40 per cent of its revenue from premium travel — is removing 17 per cent of its fleet starting April, slashing work days and freezing management wages and negotiating with pilots to take unpaid leave.

Cathay has also offered staff unpaid leave, curbed capacity growth and delayed a new cargo terminal in the city after posting a loss of HK$7.9 billion ($1.5 billion) in the second half. Its chairman Christopher Pratt last month said the aviation industry was in a “crisis”.

Mr Eckes said Asia Pacific airlines might be the hardest hit by the crisis because of their dependence on premium travellers. Filling up the coach-class seats won’t be enough to compensate for lack of premium travellers.

“Business demand has dropped sharply since August and that’s hurting profits,” said Makoto Murayama, an analyst Nomura Securities in Tokyo. “Things are going to get worse.”

Premium travel dropped the most in Asia in January, falling 23 per cent within the region, and 25 per cent on routes across the Pacific, according to Iata. BLOOMBERG

From TODAY, Business - Thursday, 16-April-2009