Local airlines struggle for growth amid intensifying overcapacity, shrinking yields

The pressures are unlikely to ease in 2015.

Local airlines’ profitability remains clipped as intensifying overcapacity in the region and cutthroat competition from other carriers continues to dampen yields.

According to OCBC, clear skies are not yet in sight for Singapore Airlines and Tigerair as capacity continues to grow faster than passenger traffic in the ASEAN.

“The overcapacity issue has plagued this region since CY13. According to the Centre for Aviation (CAPA), Southeast Asia saw a slowdown in Low Cost Carrier (LCC) aircraft growth from 19.3% in CY13 to 12.6% in CY14,” stated the report.

In particular, Tigerair’s fleet decreased by 15 aircraft in CY14 as it halted all its overseas operations to focus on the Singapore market, and delayed its fleet expansion until CY18 before taking delivery of the first A320neo it ordered.

Although more airlines are beginning to rationalize capacity, CAPA still forecasts a CY15 fleet growth rate of 13.4% even though many LCCs are expected to slow expansion by delaying aircraft deliveries initially scheduled for the year.

“With double-digit growth projected for LCCs in CY15, we expect the overcapacity issue in the region to persist, which continues to put downward pressures on yields. With the uncertainty over air travel demand and passenger traffic growth, we think revenue growth for the airlines are likely to be muted in CY15,” noted OCBC.