[photopress:airlines_crowded.2jpg.jpg,full,alignright]Most analysts when taken to one side will allow that 50% accuracy is considered reasonable. So when Merrill Lynch cut its 2007 operating profit forecast on Asian airline operators by 5% following a 25% surge in jet fuel costs over the last three months it may well be right, or not.
If you average out air travel prices and then average out income growth you find one is going up faster than the other. And it is income growth – or, if you prefer, potential air travelers – ahead of the race.
At the same time operating profits at various Asian airlines grew 70% in the nine months ended September.
It goes on to say that airlines in China, Hong Kong, Korea and Taiwan are at a disadvantage compared with their peers as their fuel surcharges are set by their regulators.
Merrill Lynch analysts Paul Dewberry and YingYing Hou, aid, ‘The level of surcharge in these territories remains well below those airlines based in Southeast Asia and Australia who are generally free to adjust their levels when they wish.’
Mild confusion here. The analysts are saying that, say, Qantas operates at an advantage because it can add the cost on and call it a fuel charge but that similar airlines based in Southeast Asia have to include it in the price which is sort of fixed. In a sense this is true and it does have an effect on the operating profit.
For example the brokerage thinks China Southern Airlines, the nation’s largest carrier by fleet size, will have it operating profit dropped by 11% to RMB1.19 billion. And it has reduced Cathay Pacific Airways’ operating profit forecast by 7%.
However, it has increased its operating profit forecast on other airlines due to better oil price hedging.
Last week China Southern shares announced its third quarter net profit rose 49% to RMB1.88 billion as rapid economic growth on the mainland boosted demand for travel. And we have ahead the Olympic Games and then Shanghai 2010. Suppose, yes, airfares do go up. Will passenger load diminish because of it? Seems dashed doubtful. The splendid illustration shows a line of intending passengers. A small air far rise will not change their minds.
Source: Centre for Pacific Aviation