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SEPTEMBER 8 , 2000 VOL. 26 NO. 35 | SEARCH ASIAWEEK
By ASSIF SHAMEEN How quickly things change. Just three months ago Asian airlines were basking in big turnarounds of their passenger and cargo traffic. Load factors on most routes were near pre-Crisis levels. Yields were starting to improve. Airlines began ordering new planes. Analysts started touting carriers' stock as "recovery plays." No more. With mounting fuel costs, airline yields are under pressure again. Despite better-than-expected passenger numbers, some second-tier carriers are looking at bigger-than-expected losses this year. Blame OPEC. Jet fuel prices have soared past $40 per barrel — the highest in 10 years. Some analysts say they may not peak until they near the $44-$46 level. That could mean fare increases on some routes, or shallower discounting as airlines try to keep revenue yields up. They have little choice. Jet fuel makes up 25% to 40% of Asian airlines' operating expenses. Among the more vulnerable to higher fuel costs: Malaysia Airlines, Thai International and Korean Air. They buy a substantial portion of the stuff on a day-to-day basis and usually keep only small inventories stored at their home bases. Not everyone is reeling. Singapore Airlines, Cathay Pacific and Australia's Qantas routinely hedge a large part of their purchases — buying for future delivery when prices are low. They also keep a substantial inventory of actual jet fuel on hand. But hedging has its costs. If oil prices fall, airlines that have hedged much of their total requirements for next year will be paying more than carriers that buy in the spot market. Airline stocks have been beaten heavily in recent weeks on fears that higher costs will cut into profitability. Even SIA and Cathay have shed over 10% of their share price. Still, analysts expect carriage factors to continue climbing as Asian economies continue to recover and intra-Asian travel goes on expanding. For airline bosses, the challenge is to keep those customers flying with fares that both they and the carriers can afford. Write to Asiaweek at mail@web.asiaweek.com
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