Southeast Asian airlines benefit from crisis

Southeast Asian airlines benefit from crisis

SINGAPORE (Reuter): Southeast Asian airlines should reap benefits from the plunge in their national currencies against the U.S. dollar in the short term, but longer-term prospects are less clear, analysts said at the weekend.

Weaker currencies will mean higher interest payments on foreign currency loans, aircraft leases and fuel costs, all usually denominated in U.S. dollars.

But the airlines should also enjoy a boost in revenues as they are denominated in foreign currencies, resulting in translation gains when profits are repatriated, the investment analysts said.

Malaysian Airlines chairman Tajudin Ramli said on Friday the carrier's earnings will be hurt slightly by rising fuel costs since jet fuel is bought in U.S. dollars.

Jet fuel, a large component of air carrier costs, is quoted in U.S. dollars, but average prices have fallen by some 20 percent to about US$23 per barrel against a year ago.

"I think the net impact should be neutral on the airlines, taking into account the lower price of jet fuel this year," said Nora Cheng, investment analyst with HSBC James Capel.

The Malaysian ringgit has fallen by some 20 percent against the U.S. dollar since early July.

"The greater fear is the negative wealth effect created by the currency crisis. We have to see whether there will be less traveling within the region over the next six to eight months," Cheng said.

She said few people might fly if regional economies had to grapple with lower growth as a result of the slump in currencies and stocks.

However, other analysts said weaker currencies should attract more tourists from outside the region.

Declan Magee, regional aviation analyst with ABN-AMBRO Hoare Govett Securities, said Thailand's weaker baht could have a "knock-on positive impact to the tourist trade".

He said passenger traffic on Thai Airways had held up well despite the slowdown in Thailand, the first Southeast Asian economy to he hit by the currency crisis and the worst affected.

Traffic growth is still outstripping new capacity which should help improve load factors at Thai Airways, he said.

Analysts said airlines like MAS and Thai Airways, popular and eager to expand, would also have to contend with higher interest payments on aircraft purchases denominated in U.S. dollars.

Tajudin said the purchase of new aircraft by MAS would go ahead on schedule, despite the sharp fall in the ringgit. "We are expanding all our networks. We have to go to new destinations. We are short of aircraft," he said.

MAS has ordered 25 Boeing Co aircraft for $4 billion.

Analysts said the higher interest cost could be offset by a rise in revenues in local currency terms from overseas operations.

Magee said as 75 percent of Thai Airway's revenues are in foreign currencies, it should enjoy substantial gains when that income is translated into baht -- a currency which has tumbled 46 percent against the U.S. dollar since July.

Even Singapore Airlines will be a beneficiary of the weaker Singapore dollar which has fallen about six percent against the U.S. dollar since July.

UBS Securities investment analyst John Doyle said SIA should also earn more Singapore dollars from its overseas earnings and comparatively spend less at home.