Airlines stuck between capacity planning and making profits

Carriers would be able to stimulate the market by adding more capacity ahead of demand, but they risk flying empty planes


LOCAL airlines are stuck between capacity planning and making profits as they strive to recover from the devastating impact of the global Covid-19 pandemic.

Industry analysts said various factors must be considered before any airline could operate at full capacity, and the main issue still lies in passengers’ readiness to fly amid the dissipating threat of the highly contagious coronavirus.

PwC Malaysia’s Strategy& partner Edward Clayton said airlines would need to tread carefully before providing more seats, while nervousness among consumers about getting on flight still persists.

Clayton said airlines would be able to stimulate the market by adding more capacity ahead of demand, but they risk flying empty planes.

On the other hand, putting the capacity behind demand could make individual flights more profitable, but fares might have to be increased.

“It is the choice they need to make. It is unbelievably hard to predict how people would respond when they are free to travel. What we have seen in China, which reopened much earlier, is that aircraft are flying relatively empty,” Clayton told The Malaysian Reserve (TMR) recently.

He said demand mostly only returned to one-third of pre-Covid-19 levels and it would be anyone’s guess when consumers would feel confident to fly again.

Clayton explained three factors that affect sentiment — the fear of catching the virus or being stranded due to international border control measures; an economic downturn that leads to prudent spending; and the new norm of video conferencing that has reduced demand for business travel.

Senior Minister (Security Cluster) Datuk Seri Ismail Sabri Yaakob said in his press briefing yesterday that all public transportations including airlines are allowed to operate at full capacity.

He said airlines, however, should adhere to the standard operating procedures (SOPs), such as taking passengers’ temperature and making wearing face masks compulsory.

At a separate event, Transport Minister Datuk Seri Wee Ka Siong told TMR the removal of social distancing practice on airplanes does not contradict the country’s Covid-19 containment measures.

“The decision is not against the Ministry of Health’s (MoH) guidelines. In fact, there has been a discussion between IATA (International Air Transport Association), MoH and Ministry of Transport to deal with the SOPs on flights.

“IATA has issued guidelines for flight operations which emphasised more on passengers’ temperature screening, frequent sanitisation for airplane interiors and guidelines for cabin crew to adhere,” he said at a press conference in Putrajaya yesterday.

Winair AS founder and aviation consultant Hans Jørgen Elnæs said people now book tickets close to departure dates to reduce risks. This, he said, causes a big challenge for airlines to plan capacity based on the booking behaviour.

“Airlines will have to opt for a more conservative approach towards adding capacity. They do not really know the demand when bookings are made close to the departure date, while having to be careful with costs,” Elnæs told TMR.

The Oslo, Norway-based consultant said any capacity increase will be linked to actual demand as airlines cannot take any chances to go to unprofitable destinations during survival mode.

“Airlines need to have a good plan to survive and capacity planning is very important,” Elnæs added.

Malaysia Airlines Bhd (MAB) has announced an increase in its domestic and international connectivity, beginning June and July respectively, to facilitate essential travels as other countries begin to lift border restrictions.

Domestically, MAB provides flights from Kuala Lumpur (KL) to Alor Setar, Johor Baru, Kota Baru, Langkawi, Terengganu, Labuan, Miri, Sandakan and Tawau twice weekly from June, as well as KL to Kuantan, Bintulu and Sibu once a week, among others.

On the international market, the national flag carrier will start flying to Singapore five times a week in July, Jakarta and Bangkok four times a week, and Manila three times a week, among others.

“The airline will adjust its network capacity from time to time to ensure passenger demands are met, prior to normalising the schedule in October for both domestic and international destinations,” a recent MAB statement disclosed.

As of yesterday, AirAsia Group Bhd is gradually resuming services in the Philippines starting June 5, following the government’s directive in easing community quarantine restrictions in Metro Manila and several parts of the country.

The low-cost carrier said the resumption will initially be for key domestic routes and gradually increase to include international destinations in the following months.