AirAsia has little margin for error in crisis over missing jet

Mon Dec 29, 2014 6:50am EST
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By Al-Zaquan Amer Hamzah and Anshuman Daga

KUALA LUMPUR/SINGAPORE (Reuters) - As AirAsia Bhd grapples with its first airliner disaster since its founding a dozen years ago, Asia's biggest budget carrier will have little margin for error given tough competition and thin profits in the sector.

Even before an Indonesia AirAsia flight went missing on Sunday night with 162 on board, presumed to have crashed off the Indonesian coast, affiliates in Thailand and the Philippines as well as its long-haul unit were posting losses while its Indonesian unit eked out only a tiny profit in the latest quarter.

Several analysts believe the incident could deter some passengers from using the airline, at least in the short term, with an outsized impact on its bottom line.

"Given the thin margin nature of the airline business, our calculations suggest that a 1 percent decline in IAA (Indonesia AirAsia), Malaysia AirAsia and Thai AirAsia's 2015 passenger traffic will result in a 13 percent reduction to AirAsia's 2015 net profit," CIMB analysts Raymond Yap and Jian Bo Gan said in a report.

The group is locked in fierce competition with regional rivals such as Malaysian Airline System Bhd, Qantas unit Jetstar, Indonesia's Lion Air and subsidiaries of Singapore Airlines.

With the AirAsia livery displayed prominently on the missing aircraft, the CIMB analysts expected the AirAsia group's Malaysian and Thai carriers would also be affected by the incident.

"But unless there is a second incident in the very near future, the AirAsia group's strong safety track record and very attractive commercial offerings may help limit the contagion and ensure a speedier demand recovery," they added.

Both the Indonesian and Malaysian aviation sectors have come under scrutiny after a series of accidents which have spooked air travelers and spurred action by safety authorities.   Continued...

Passengers check in an AirAsia flight at Soekarno-Hatta International Airport in Jakarta December 28, 2014. REUTERS/Pius Erlangga