Overcapacity seen to cap Asean budget airlines’ 2015 growth

SOUTHEAST Asian budget carriers are seen increasing their fleets modestly this year as the current “overcapacity” brought about by a decade of massive expansion continues to place a cap on major fleet growth plans, an aviation consultancy group said.

CAPA-Center for Aviation said in a report Wednesday that the region’s low cost carrier fleet already recorded a significant slowdown in 2014, as the region’s combined fleet grew by 13 percent to 536 planes. In 2013, the figure grew 20 percent.

Based on fleet size, Cebu Pacific, the country’s largest budget carrier, was the third-biggest in the region, with 48 planes at the start of 2015, behind dominant player Lion Air of Indonesia (103 planes)  and Malaysia’s AirAsia Bhd (80 planes).

“A similar fleet growth rate of approximately 13 percent is likely in 2015, following further revisions to fleet plans in response to overcapacity, which has impacted most Southeast Asian short-haul markets since [ the second half of 2013],” CAPA said.

The forecast echoed a recent report by Moody’s Investors Service, which noted that capacity in Asian carriers have so far outstripped demand growth. Moody’s noted that this will continue to be the case in 2015, despite lower fuel prices, as it said operators are “not likely to add extra capacity” for the year.

In the Philippines, flag carrier Philippine Airlines, which is not a budget carrier but competes with Cebu Pacific and Air Asia Philippines, has decided to defer the order about 38 Airbus planes, staggering their delivery through 2024 instead of 2020, originally.

CAPA said the rapid expansion of no-frills budget airlines over the last 10 years, led by Lion Air and AirAsia, “has completely changed the Southeast Asian marketplace”. During this period, capacity had grown 800 percent from 25 million seats in 2004 to almost 200 million seats in 2014, CAPA said.

In contrast, the capacity of full-service carriers has increased by about 45 percent from 180 million seats in 2004 to 260 million seats in 2014.

It noted in the report that growth could ramp up again in 2016 or 2017, assuming market conditions improve.

“Higher growth rates ultimately will be required for Southeast Asia’s huge LCC order book, which consists of nearly 1,200 aircraft, to remain intact,” CAPA said. The regional consultancy firm also did not discount the effect of declining fuel prices, which started in 2014.

“The potentially huge impact of lower fuel prices could also reshape strategies in 2015, as some LCCs record a 20 percent reduction in total costs,” CAPA said.

For 2015, CAPA said Cebu Pacific will remain the region’s third largest fleet with 52 planes. Lion Air will continue to dominate with 110 planes while AirAsia will end the year unchanged with 80 planes.