SEPANG: Competition between airlines in Asia Pacific is set to intensify, with cut-throat pricing potentially forcing some carriers out of business or to consolidate, warned Malaysia Airlines Bhd group chief executive officer (CEO) Christoph Mueller.
Consolidation in the aviation sector has taken its course in the United States, is in its final stage in Europe and is poised to shake up this region next, said Mueller, who has helped turn around Ireland’s loss-making Aer Lingus within a year.
“In Asia, it’s madness, because the order books of all carriers combined exceed the true demand by a factor of two. Asia, as a region, has ordered double the number of aircraft needed by the market.
“People put these aircraft in the market, try to fill them by lowering the prices and nobody makes money,” said the 55-year-old corporate restructuring specialist in an exclusive interview with the New Straits Times.
Mueller, who previously held senior positions at Lufthansa, Swissair Group, Delta Air Transport and DHL Express, said there would come a point where some companies would go out of business.
“It’s involuntary consolidation, but it will happen. It has to happen,” he said in the hour-long interview at Malaysia Airlines’ corporate office here.
Global commercial aircraft manufacturer Airbus SAS has projected that passenger traffic in the region will grow 5.6 per cent annually.
The European-based plane maker forecast that Asia Pacific would need 12,800 new aircraft valued at US$2 trillion (RM8.3 trillion) in the next two decades, representing 40 per cent of 32,600 new aircraft demand worldwide.
Mueller, who assumed the position of CEO for the national carrier on May 1 last year, lamented that the region’s airlines have not learned from what happened in the US after deregulation.
“More airlines went bankrupt than anywhere else in the world. It happened in Europe in the last couple of years and it will happen here.
“Also, the equity needed to buy all these aircraft cannot be raised by the local stock markets or by private investors. It’s impossible,” said Mueller, who has a pilot’s licence and had his first solo flight at the age of 15.
The German citizen said the airline business is a commodity and functions the same way as gas, electricity and water sectors — the lowest cost provider makes the money.
“There are a limited number of commodity providers in the market. It’s not like cars or fashion or something like that. It’s a scale business.
“But we will learn the lesson the hard way, I have no doubt. And we (Malaysia Airlines) will do our homework, and we will be profitable in 2018,” added Mueller.
Malaysia’s main carriers are Malaysia Airlines, AirAsia and Malindo Air. New players include Rayani Air, which started operations in December, and Bayu Air, which has yet to apply for an operating licence, according to the Department of Civil Aviation. Additional reporting by Bilqis Bahari