Bad mojo

Asian airlines need the right kind of mojo

A soon-to-be-launched Malaysian carrier is the latest cloud in Southeast Asia's overcrowded skies. Flymojo has placed a tentative order for 20 aircraft from Canada's Bombardier worth $1.5 billion based on current list prices. More competition is the last thing the recovering sector needs. It's a reminder that in aviation, uncertainty and financial losses are always just around the corner.

Airlines in the region are only just beginning to mend their finances after two years of intense growth led to overcapacity and cut-throat pricing. Loss-making flag carrier Malaysia Airlines, which was nationalised in December, is still in the early stages of a big restructuring. AirAsia's local operation last year reported its slowest growth in passengers since its launch in 2000, according to CAPA-Centre for Aviation, an independent aviation consultancy. The company's long-haul affiliate AirAsia X announced a rights issue in January and its shares are trading at their lowest level since the carrier listed two years ago.

That makes it a particularly odd time to launch a new airline, even if it claims to offer something different. Airlines in the region are increasingly looking for ways to set themselves apart from the competition. Flymojo is pitching itself as a full-service airline that will operate on under-served routes. Air travel to, from, and within Southeast Asia is projected to grow at an average 6.6 per cent annual rate for the next 20 years, Boeing reckons. Full-service carriers have grown at a more measured pace than their low-cost rivals in recent years but the distinction between the two is increasingly blurry. The worry is that the new airline will simply overlap with existing ones or force them to compete on unprofitable routes.

In a region brimming with status-conscious tycoons, the glamour associated with owning an airline almost guarantees that any recovery will be short-lived or at best bumpy. Many airlines are still expected to lose money this year despite low oil prices, restructuring efforts, and early signs of more rational behaviour by some operators. The lack of transparency around Flymojo's finances has led some to speculate that it may be another start-up that never takes off. Airline investors will be hoping that's the case.