Look to commercial finance before asking for govt help, airlines told

 An economist says airline operators must consider the government’s current financial position even as the aviation sector remains vital to tourism, trade and connectivity.

Average jet fuel prices have risen to nearly US$180 per barrel, a sharp climb from about US$96 before the Iran conflict began. (Envato Elements pic)

PETALING JAYA:

An economist says airlines grappling with volatile fuel prices should exhaust commercial financing options before considering turning to the government for help.

Harridon Suffian.

Harridon Suffian of Universiti Kuala Lumpur Business School said while the aviation sector remains vital to tourism, trade and connectivity, airlines must consider the government’s current financial position.

“The fiscal position of the government is currently precarious,” he told FMT, adding that the government is managing fiscal constraints and reviewing its spending priorities.

Harridon was asked about the resilience of Malaysia’s various airlines following reports involving Philippines AirAsia and broader concerns over the impact of elevated fuel prices on profit margins.

Earlier this month, Philippine aviation authorities directed AirAsia Philippines to settle more than 270 million pesos (RM17.6 million) in unpaid aviation charges within three days.

AirAsia Group denied reports suggesting the carrier’s operations could be halted, describing them as false. The airline later settled the outstanding amount and continued operating without interruption.

Rising fuel prices, costs squeeze margins 

In a press statement issued on June 7, the International Air Transport Association (IATA) said the price of jet fuel is expected to rise to US$152 per barrel as a result of the prolonged Iran conflict. This will be a 70% rise from 2025.

IATA director-general Willie Walsh said net profit per passenger is now expected to fall to US$4.50, down from the US$7.90 forecast before the Iranian war, a figure he said showed resilience but “won’t even buy you a hot dog at most of the Fifa World Cup venues” and leaves little buffer if other costs or taxes rise.

Fuel accounts for 30% to 40% of a domestic airline’s operating cost. While airlines can temporarily absorb some of these shocks, their capacity to do so is limited.

“Several indications such as reduction in flight frequency, raised fares, reduced weekly crew workloads, and cessation of (flights to) certain locations  pointed toward the financial degradation of airlines,” Harridon said.

Earlier this year, rising fuel prices had already forced some airlines to make operational adjustments.

Batik Air Malaysia reduced frequency of scheduled flights by 35% in the first half of April and offered voluntary unpaid leave to employees as jet fuel costs nearly doubled within a month.

AirAsia and Batik Air also disclosed that they did not have fuel-hedging contracts in place. The Straits Times reported in May that AirAsia continues to avoid hedging, as it believes oil prices will eventually come down.

Airlines that have hedged at least a part of their fuel requirements are better insulated from price volatility, while unhedged carriers face the full impact of rising market prices.

Earlier this year, Malaysia Aviation Group (MAG) said it had hedged about 36% of its fuel needs in the first quarter of 2026 and roughly 50% in the second quarter to mitigate fuel-price risks.

The pressure is particularly significant ahead of Visit Malaysia 2026, which aims to attract 47 million international visitors and generate RM329 billion in tourism revenue.

Against this backdrop, Harridon urged carriers to take a proactive stance by engaging creditors and exploring loan facilities rather than look to Putrajaya as a first resort.

“There are numerous syndicated financial credits that airlines could utilise. They should be strategic in their financial traction to entice creditors to extend the needed syndicated loans.”

He added that any direct government support would likely be minimal, given the broader economic pressures and escalating costs that have had a negative impact on multiple sectors.

Still, he warned that policymakers cannot simply ignore a weakened aviation industry. “If the economic impact is tremendous, it will trickle down to other industries such as tourism, cargo, import and export, aircraft maintenance services, spare parts and more.”

However, aviation markets had historically shown resilience and typically stabilised within 14 to 20 months after major disruptions, depending on capital availability and investment pace.

In that recovery window, consumers are likely to face higher fares, reduced flight frequencies, and fewer route options as airlines recalibrate their operations to survive the financial squeeze.

Alternative forms of support 

Aviation analyst Shukor Yusof of Endau Analytics agreed that airlines are under significant financial strain but said that government intervention does not have to come in the form of direct bailouts.

Shukor Yusof.

“A bailout should only be considered after all other options are exhausted,” he said. “There are other forms of support, not necessarily money, such as tax relief, ways to offset higher jet fuel prices, credit extensions or longer repayment terms.”

In 2020, the federal government said it would not bail out airline operators.

Shukor said air connectivity was of strategic importance to Malaysia’s economy, noting the necessity of keeping the country’s major carriers stable. - FMT