Airlines forced to cancel flights to and from Bali last Friday

AirAsia, MAB have since resumed flights, according to official statements on Saturday


Airlines are seen to incur significant losses from the cancelled flights heading to and out of Bali as the natural disaster-prone area has remained a profitable destination for operators.

Indonesian authorities were forced to close the I Gusti Ngurah Rai International Airport in Denpasar, Bali, for 16 hours following the eruption of the active Mount Agung volcano last Friday, forcing the cancellation of close to 450 flights and affecting some 75,000 travellers.

This is the second time the international airport in Bali was forced to close in the past seven months following Mount Agung’s earlier eruption back in November last year.

AirAsia Group Bhd, the Malaysia-based low-cost carrier, was forced to cancel 55 flights going in and out of the popular tourist destination last Friday, giving affected passengers the options to move their flights to a new date, retain the lost fare in a credit account or request for a full refund.

Malaysia Airlines Bhd (MAB) also cancelled two flights respectively from Kuala Lumpur to Bali and from Bali to Kuala Lumpur on that same day.

AirAsia and MAB have since resumed flights to and from Bali, according to official statements on Saturday.

An industry analyst for TA Securities Holdings Bhd said the costs borne by airlines due to the cancelled flights would be in the form of refunds and deferred travel dates, with the latter resulting in a delay in revenue recognition.

“An incident like the Mount Agung eruption affects all airline operators and is part of the day-to-day business of the industry,” the source, who chose to remain anonymous, told The Malaysian Reserve (TMR).

“Bali remains a popular destination (for both travellers and airlines) and the impact of the volcanic eruption on tourism depends on the seriousness of the incident.”

Maybank Investment Bank Bhd aviation analyst Mohshin Aziz said the Bali incident is not an “ideal situation” for any airline as the cancelled flights have to be compensated one way or the other.

“Refund is an option though more often travellers will retain the value of the fare in a credit shell or account, but ultimately this is an opportunity cost incurred by airline operators,” he told TMR, adding that the manpower mobilised for the cancelled flights would bear additional costs.

“This is part and parcel of the airline business and all operators make provisions for natural disasters.”

He said Bali remains a profitable route as long as people are willing to travel there and pay high to relatively high fares to do so.

Following Mount Agung’s eruption late last year, tourist arrivals in Bali dropped 12.5% from 361,006 in November to 315,909 the following month.

Arrivals quickly picked up since to 358,065 in January this year, and has steadily gained traction to rise to 516,777 in April. The impact of the volcanic eruption last week on Bali tourism remains to be seen.