'Thin' profits for SEAsian carriers amid tough competition

Southeast Asian airlines are likely to see "thin" profits for some time to come as competition from budget carriers and Middle East rivals squeezes earnings, the IATA chief said Sunday.

The recent global stock market turmoil is also expected to take a toll on air travel, particularly in business class where full-service airlines earn most of their profits, said Tony Tyler, director general of the International Air Transport Association.

"Airlines in this region are finding profitability quite thin because of the pressure of strong competition, and there's a lot of capacity in the market," Tyler told reporters ahead of the Singapore Airshow on Tuesday.

"When you take the strong competition from low-cost carriers in the region... and you take the very strong competition for long-haul traffic from the Gulf carriers, profitability for airlines in this region is not strong at all."

IATA in December estimated global airlines' net profit for 2016 at $36.3 billion, up 10 percent from its estimate of $33 billion for 2015.

But Tyler said more than half of this year's profit would come from North America, with earnings by Southeast Asian carriers likely to come under heavy pressure.

Underscoring the challenge, Tyler said no-frills carriers now account for 54 percent of capacity in Southeast Asia, up from around 38 percent in 2009.

Comparably, budget airlines account for 31 percent of capacity in the United States and 39 percent in Europe. The global average is 26 percent.

Budget carriers like Malaysia's AirAsia, Indonesia's Lion Air, Singapore-based Jetstar, Thaland's Nok Air, Cebu Pacific of the Philippines and Vietnam's Vietjet are giving regional industry mainstays like Singapore Airlines a tough challenge.

Gulf carriers like Qatar Airways, Etihad and Emirates have eaten into their Southeast Asian rivals' long-haul premium markets by offering top-notch in-flight services and the latest aircraft.

Tyler said Southeast Asian legacy airlines "can play to their particular strengths" to compete, leveraging on their strong brands and service quality.

They must also keep cutting costs and investing in modern fuel-efficient planes, he said.

"The airlines in this part of the world are generally well run, efficient businesses and they're quite capable of competing... but it's just certainly at the moment a tough market," the IATA chief said.