Collectively, airlines in Asia are expected to deliver a net profit of US$6 billion (Bt188.72 billion) in 2019, down from US$7.7 billion in 2018.

Accounting for about 40 per cent of global air cargo traffic, the region is the most exposed to weakness in world trade, said the International Air Transport Association (Iata), which unveiled its latest industry forecast on Sunday (June 2).

Speaking at the opening of the association’s 75th Annual General Meeting, Iata chief executive and director-general Alexandre de Juniac said that the current challenges have led to a cut in profit forecast.

Instead of a global collective profit of $35.5 billion (forecast in December), airlines are now expected to make $28 billion in 2019.

In 2018, estimated profit was $30 billion. de Juniac said: “This year will be the 10th consecutive year in the black for the airline industry. But margins are being squeezed by rising costs right across the board – including labour, fuel, and infrastructure.

Singapore Airlines chief executive Goh Choon Phong told The Straits Times that from about 50 per cent market share, low-cost carriers increased their presence in the region to 52 per cent in 2017.

Passenger capacity (in available seat kilometres) grew 6.4 per cent, while load factor, which measures how full a flight is, inched up 0.1 percentage point to 79.6 per cent.

“Stiff competition among airlines keeps yields from rising. Weakening of global trade is likely to continue as the US-China trade war intensifies.”

While this primarily impacts the cargo business, passenger traffic could also be impacted as tensions rise, he warned.

“Airlines will still turn a profit this year, but there is no easy money to be made,” he stressed.

Turning to the other regions, Iata warned that carriers in the Middle East like Emirates and Etihad Airways can expect to have an even worse year than their Asian counterparts.

Together, they are forecast to lose $1.1 billion in 2019.

“The region has faced substantial challenges in recent years, both to the business environment and to business models,” Iata said.

Airlines there are going through a process of adjustment, and announced schedules point to a substantial slowdown in capacity growth next year.

Juniac said: “Aviation needs borders that are open to people and to trade. Nobody wins from trade wars, protectionist policies or isolationist agendas. But everybody benefits from growing connectivity.”

He stressed: “A more inclusive globalisation must be the way forward.”

Addressing more than 1,000 airline and airport heads, as well as other industry partners, Mr de Juniac said at the AGM held at the COEX Convention Centre that the industry is also dealing with many other issues.

These include challenges around infrastructure, the environment and safety.

Critically congested airports are spread the world over, he said. Sao Paolo, New York, London, Amsterdam, Mumbai, Bangkok and Sydney are all examples of airport bottlenecks due to capacity constraints.

On safety, de Juniac acknowledged that while overall numbers show clearly that flying is safe, the facts give no comfort to those who have lost family or friends in aviation tragedies.

The two recent Boeing 737 Max crashes – in Ethiopia and Indonesia – have put the industry’s reputation in the spotlight.

Turning to the environment, de Juniac stressed that the way forward is not to reduce flights.

“That would have grave consequences for people, jobs, and economies the world over. It would be a step backward to an isolated society that is smaller, poorer and constrained. And the overall impact on global emissions would be small,” he said.

With new aircraft technology, the recent launch of a global carbon offsetting and reduction scheme for airlines, the development of sustainable fuels, and close partnership with airports and air traffic controllers to better manage flights, Iata is confident the industry can meet its goals.

Malaysia will continue using Huawei products “as much as possible”, bucking a global trend prompted by security concerns and a US ban on the Chinese firm, the country’s prime minister said last week.

Mahathir Mohamad, speaking at a conference in Tokyo, acknowledged the security concerns but said they would not deter Malaysia.

“Yes, there may be some spying. But what is there to spy [on] exactly in Malaysia? We are an open book,” the 93-year-old said.

Mahathir said Huawei had access to research “far bigger than the whole of Malaysia’s research equivalent”.

“So we try to make use of their technology as much as possible.”

“Everybody knows, if any country wants to invade Malaysia, they can walk through, and we will not resist because it’s a waste of time,” he added.

His comment came after a wave of controversy over the Chinese telecommunications firm, which has been hit by allegations of espionage and faces a US ban.

A number of countries have blocked Huawei from working on their mobile networks and companies have stepped back from the firm after the US ban, citing legal requirements.

The spat comes as the US and China raise tariffs in tit-for-tat moves along with blistering rhetoric accusing each other of unfair trade practices.

Mahathir warned about the heated exchanges between Beijing and Washington, which come as the powers and their allies lock horns in the hotly contested South China Sea.

Mahathir said the US and “the West” must accept that Asian nations now produce competitive products, and should not “threaten” business rivals.

“Yes, I understand Huawei has tremendous advance[s] over American technology even,” he said. – The Star

Banks rush to issue bonds for long-term capital hike

Vietnamese banks have continued issuing a large amount of bonds to raise capital to meet State Bank of Vi?t Nam (SBV)’s stricter regulations on credit safety limits and capital adequacy.

Last week alone saw the Asia Commercial Bank (ACB) and VietinBank announce bond issue plans worth up to 15.5 trillion dongs (US$665 million, Bt2.1 trillion).

ACB’s board of directors approved a plan to issue two-year and three-year bonds worth 5.5 trillion dongs, with a maximum interest rate of 6.75 per cent.

ACB said the money raised from this issuance would be used to increase the bank’s working capital to satisfy rising credit demand.

In April, ACB also approved the first private placement in 2019 with total face value of 2.5 trillion dongs.

According to the audited financial statement, by the end of March, the bond value issued by ACB was more than VNะ7.96 trillion.

Meanwhile, VietinBank last week also received the SBV’s approval to issue 10 trillion dongs worth of bonds. – Viet Nam News

Garuda ordered to pay A$19m for price fixing

Australia’s Federal Court has ordered flag carrier Garuda Indonesia to pay 19 million Australian dollars (US$13.13 million, Bt413 million) for colluding on fees and surcharges for air freight services, according to a statement issued by the Australian Competition and Consumer Commission (ACCC).

The statement says the penalties followed the ACCC’s court action against a global air cargo cartel, which has so far resulted in penalties of 132.5 million Australian dollars against 14 airlines, including Air New Zealand, Qantas, Singapore Airlines and Cathay Pacific.

The Court found that between 2003 and 2006, Garuda made agreements that fixed the prices of security and fuel surcharges, as well as customs fees from Indonesia. It was ordered to pay A$15 million.

A further A$4 million was fined for the imposition and level of insurance and fuel surcharges from Hong Kong.

According to the statement, the ACCC commenced legal action against 14 international airlines between 2008 and 2010 under the 29174 Trade Practices Act for conduct that occurred between 2002 and 2006.

Meanwhile, Garuda Indonesia VP corporate secretary M. Ikhsan Rosan said the airline denied price fixing and such punishment could not be imposed on Garuda.

He also said the court decision was not binding yet and the airline still had the opportunity to submit an appeal. – The Jakarta Post

Neda Undersecretary Adoracion Navarro said in a media briefing the government was continuing to address inequality among the regions even as economic growth at the subnational level “remains robust.”

In 2018, 12 of the country’s 17 regions exceeded the overall national growth pace of 5.2 percent.

Navarro said that in the regions, growth was still mostly consumption-driven, but the investment sector was slowly increasing its contribution.

Thanks to revved up construction activities in both public and private sectors, Bicol grew fastest last year at 8.9 per cent, Davao and Mimaropa completed the top three with 8.6 per cent.

A decline in the manufacturing sector nudged the National Capital Region to the bottom three with 4.8 per cent. Vulnerability to natural calamities limited growth in Cagayan Valley at 3.3 per cent and a slowdown in mining pegged Caraga’s at 3.2 per cent.

Observations made over the past three years show that no region was consistently the highest nor the lowest in terms of growth. The best performer in 2016 was Eastern Visayas while 2017 had the Cordilleras.

Also, Neda’s estimates showed that regional inequality in income per capita across widened over time—from 2009 to 2018.

“Since the high-income (individuals or households) tend to be located in high-income regions, this means the rich are getting richer,” Navarro said.

Another observation was that regions with the lowest per capita growth rates have relatively high average annual population growth rates.

In particular, Eastern Visayas and Muslim Mindanao have the lowest average per capita growth rates and they also have relatively high poverty rates.

She said that, considering these, the government had to continually increase its efforts in pushing for regional and rural development.

“We need to improve connectivity across regions and enhance the efficiency of transport, communications, and overall logistics network,” she said. “Poor regions must catch up fast.”

Neda has lined up six recommendations for the government to sustain economic growth in the regions:

l Improve connectivity and enhance the efficiency of transport, communications and the overall logistics network.

l Improve agricultural productivity, efficiency and income especially among small farmers.

l Promote greater diversification and strengthen commodity value chain.

l Strengthen convergent efforts to enhance competitiveness of local industries especially the small and medium enterprises

l Improve access to social services, especially in rural areas.

l Strengthen resilience against natural and man-made disasters and risks.

The rating was increased to BBB from BBB- and put on a stable outlook, S&P said in a statement on Friday. The long-term rating may be raised again if Indonesia’s external settings improve materially from their current levels, or if its fiscal settings improve over the next two years, it said.

“We raised the ratings to reflect Indonesia’s strong economic growth prospects and supportive policy dynamics, which we expect to remain following the re-election of President Joko Widodo recently,” S&P said. “The sovereign ratings on Indonesia continue to be supported by the government’s relatively low debt and its moderate fiscal performance.”

The rating upgrade will be a shot in the arm for Widodo, who’s pledged to bolster growth and expand an ambitious infrastructure drive that’s estimated to cost more than US$400 billion in his second term. It puts Indonesia at the same level as Hungary and Uruguay, but a notch below the Philippines, which won an upgrade from S&P last month.

“The upgrade validates our view that Indonesia’s fundamentals are sound and reform prospects remain good after the elections,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.

“It is not in our short-term nor long-term interests to manipulate the currency,” Heng, who is also Finance Minister, said in his reply to The Straits Times.

Speaking to Singapore journalists at the end of a three-day visit to Tokyo, he said the Monetary Authority of Singapore is unique in how it uses the exchange rate as its monetary policy tool, unlike most central banks that use interest |rates.

“Many years ago, we have already realised that, being such an open economy where trade is a much bigger percentage of our gross domestic product – today it is three times our GDP – the exchange rate has a far bigger impact on inflation and economic conditions than interest rates,” he said.

“Our monetary policy seeks to achieve price stability that is compatible with growth.”

Singapore was placed on the watch list for its large current account surplus and net foreign currency purchases of at least US$17 billion (S$23.4 billion, Bt534.72 billion) last year, or 4.6 per cent of the GDP, which is more than double the US threshold.

The US said it will monitor countries on the list to see if they are purposely devaluing their currencies to gain a trade advantage.

Heng said it will be unsustainable for Singapore to manipulate its exchange rate.

Holding it deliberately low will cause hyperinflation, while keeping it artificially high will result in severe deflation, he added.

Singapore does not use exchange rate to achieve an advantage, he said, because “you may get a short-term boost, but you will end up with longer-term problems”.

“The economy goes through cycles, and changes in exchange rates and fiscal policy help us to dampen the amplitude of those cycles,” he said.

Given Singapore’s ageing population, Heng also stressed the need for structural policy changes, through the industry transformation maps, to protect long-term growth.

He said: “If we manipulate our exchange rate for some short-term gains, we will set ourselves further behind.”