RISING oil prices and a strong greenback are reasons Asia’s premium airlines are looking dire as earnings season approaches.
Michael Beer, vice president of Asia-Pacific transportation and infrastructure at Citi told CNBC, “Fuel is 30 to 40 percent of costs and 70 to 80 percent of total costs are in USD, including fuel.”
According to the report, production cuts from major exporters are also to blame for the dip.
On top of that, market trends are also causing a shift in the industry with premium airlines such as Singapore Airlines and Cathay Pacific feeling the hit.
Beer added, “Cathay and Singapore Airlines are losing their relative edge and they are disintermediated by Gulf, Chinese, and U.S. carriers.”
Recently, Singapore Airlines recorded a 36 percent slump in third quarter profit as passenger numbers declined and the company wrote down the value of a budget unit’s brand.
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The carrier is battling promotional campaigns and volume bookings from the Gulf’s “big three” airlines – Emirates, Etihad, and Qatar Airways.
Plus, giant Middle Eastern airlines have comfortably secured the business travel market by way of premium amenities and services such as in-flight showers, as well as frequent price slashes.
In November, the airline said in a statement: “The prospects for most major economies remain ‘tepid’, while the passenger airline business continued to be impacted by geopolitical uncertainty and weak global economic conditions.”
Meanwhile, Cathay Pacific said last month it will eliminate some positions as part of a business review, with key changes set to kick in by mid-year.