Asian Viewpoint

Yielding Clues

While there is no question that Asian passenger traffic has bounced back from the calamitous drop off in 2008 and much of 2009. Traffic figures have shown a gradually more sustained recovery since around the middle of last year.

The questions now are, will this be sustained and will it lead to a corresponding improvement in yields. As regards sustainability, airlines are as ever at the mercy of events – as recent events in Europe demonstrate, both in terms of natural and manmade disasters.

As regards yields, these have undoubtedly been lagging the improvement in traffic numbers, although there have been one or two hopeful signs.

First quarter results from Malaysia Airlines gave some indication of the current state of play (see MAS link) on the yield issue. Managing director Tengku Dato’ Azmil Zahruddin seemed optimistic, commenting, “We are delighted to see the revival of the front end traffic with the return of business class passengers. We will continue to work on improving our yield.” Even so, the figures show there is a lot of room for improvement. Average passenger yield at 24.5 sents/RPK was down 19.6% compared with the first quarter of 2009.

But with load factors up a third at 74.8 pps compared with a dismal 56.1 in Q1 last year, there is clearly hope on the yield front. Capacity growth remains conservative, with three Boeing 737-800s joining the fleet later this year. Q1 available seat kilometres were down 3.1% on Q1 2009.

There was certainly cheer on the cargo front, where cargo yields were up 15.8% to 79.86sen/LTKM (load tonne kilometres). Cargo load factors were up 21.3% to 77.6 pps.

Maybank Investment Bank estimates that non-fuel costs fell by around 7% - although with fuel costs up 41.7%, overall costs were up 5.2%. This is still well below revenues which were up 21.3% (although around half of this came from RMB329 million in compensation from Airbus for the delay to the A380s).

MAS, of course, is very much at the eye of the storm in as much as it has AirAsia in its back yard, which may help explain some of the weakness. Q2 should give some more clues on the yield front – undoubtedly MAS will be doing a lot of testing the water on this front in the meantime. And – like everyone, will be hoping for the best when it comes to the world economy and volcanoes.