By DPA
Singapore : The earnings outlook for Asia’s airlines is expected to deteriorate this year on weakening premium traffic and record aircraft deliveries, investment house Merrill Lynch said Wednesday.
“We think 2007 was the peak for the current earnings cycle and have cut our forward sector estimates by an average 5 percent,” the report said. “Our forecasts are 13 percent below consensus for 2008, 22 percent for 2009.”
Referring to first-class travel, Merrill Lynch cited “early signs that premium traffic demand may be weakening due to the recent turmoil in financial markets and fears of a US recession.”
The sector also “has to absorb a record number of wide-body aircraft deliveries in both 2008 and 2009, which will drive pricing and margins lower”.
The investment house recommended investors buy into more driven names in the region, including Singapore Airlines, Air Asia and Taiwanese carriers.
Cargo is also set to remain weak in 2008, Merrill Lynch said.
“Transpacific cargo demand faces tough headwinds from an expected US consumer recession, while new capacity out of China will hurt regional yields and loads,” it said.