KUALA LUMPUR (Jan 16): Malaysia’s two biggest airlines, Malaysia Airlines and AirAsia, said they will continue to communicate closely with their suppliers to manage cost inflation in 2025, amid challenges from supply chain headwinds to inflation, although both are divided on the outlook for the year.

Like in 2024, supply chain issues will continue to eat into demand in 2025, according to industry watchers like the International Air Transport Association (IATA), which had forecasted higher operating costs and, in turn, flat revenue per passenger as well as lower yields despite record-high load factors.

However, AirAsia Aviation Group (AAAG) said it is “optimistic” about 2025 outlook “particularly in Southeast Asia”, where most of its operations are and where it sees sustained consumer spending power, amid what it described as controlled inflation and labour market growth.

It sees supply chain constraints to be “manageable” this year, coupled with a reduction in return-to-service costs, of which the bulk was recorded in 2024, with just 11 additional planes to be added this year, said AAAG group chief executive officer Bo Lingam.

“With this substantial effort largely behind us, we anticipate a significant reduction in these costs for 2025, directly contributing to improved operating profits,” Bo said in a written reply to The Edge.

On airfares, AAAG anticipates a “modest rise” this year due to external factors such as airport charges and spare parts cost inflation. “However, we believe the industry will maintain rational pricing that aligns with value delivery,” Bo said.

In the first nine months of 2024, Capital A Bhd’s (KL:CAPITALA) aviation business, which includes AirAsia in Malaysia, Indonesia, the Philippines and Thailand, posted segment loss of RM42.08 million before including forex gains, taxes, as well interests and depreciation on non-operating aircraft, compared with RM215.87 million loss a year ago.

Meanwhile, its sister company AirAsia X Bhd (KL:AAX), which operates low-cost long-haul airlines in Malaysia and Thailand posted RM97.21 million net operating profit before forex gains in the same period, amid higher revenue and having 17 out of 18 aircrafts operational then.

MAG addressing supply chain issues impact

Separately, Malaysia Aviation Group Bhd (MAG) group managing director Datuk Captain Izham Ismail said the airline “remains cautious” due to industry uncertainties, including persistent supply chain issues from late aircraft deliveries to reliability issues with spare parts.

“These challenges hinder MAG’s ability to expand its network and enhance the reliability of its global services,” said Izham.

Malaysia Airlines had to cut 20% of its capacity at the start of the fourth quarter last year and gradually revive the network as capacity comes in. Its maiden Airbus A330neo also suffered technical issues during its inaugural flight due to poor production quality, resulting in the temporary grounding of the aircraft.

To mitigate the impact of exchange rate fluctuations, the MAG chief said the aviation group “strategically prioritises international points of sales (POS) and international connecting flows, which generate significant foreign currency revenue”.

“This approach not only stabilises market fares but also instil confidence and trust among customers,” Izham said.

To enhance cost efficiency, MAG is “consistently reviewing and optimising major supplier contracts”, he added.

Similarly, AAAG is “collaborating closely with suppliers to mitigate cost pressures and ensure predictable input pricing”, Bo said. “Additionally, we are in effective discussions with airport operators and ground handlers to explore ways to reduce costs,” he added.

According to IATA, global air passenger traffic is expected to grow 6.2% this year, to exceed the five billion mark for the first time ever to 5.2 billion passengers — higher than before the Covid-19 pandemic.

However, the air travel demand boom has yet to be fully captured as pandemic-induced supply chain issues still loom over the airline industry.

This year, in Asia Pacific, average net profit margin is expected to rise marginally to 1.4% in 2025 from 1.3% in 2024 on higher volume, while revenue per passenger remains unchanged at US$1.80 (RM7.97), IATA said in its 2025 airline industry financial outlook.

Unique proposition

Amid intensifying competition, airlines are doubling down on their unique proposition, reflecting the difference between low-cost and full-service strategies.

In neighbouring Singapore, Singapore Airlines is doubling down on its premium offerings with a S$1.1 billion (RM3.62 billion) revamp of 41 Airbus A350-900 aircraft.

After posting record high earnings for the year ended March 31, 2024 (FY2024), its net profit for the first half of FY2025 fell 48.5% to S$742 million, from S$1.44 billion.

The Temasek-backed airline had explained that “increased capacity and stronger competition in key markets led to yield moderation, resulting in lower operating profit”. It also expects to continue “adjusting its passenger network and capacity to match evolving demand patterns”, according to its results note.