Skymark Budget Airline Short Of Pilots

June 3, 2008

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Japan's Skymark Airlines, a discount domestic carrier, will cancel 168 flights in June due to a shortage of pilots, sending its shares to their lowest level this year.

The shortage comes after two pilots retired at the end of May, and the cancellations account for about 10 percent of all its scheduled flights this month, affecting four routes and about 9,000 passengers, Skymark said.

Fitch Ratings analyst Satoru Aoyama said he had almost seen it coming as budget airlines have fewer resources to cope with such pilot shortages, compared with bigger rivals such as Japan Airlines and All Nippon Airways.

"Airlines are suffering from a shortage of pilots globally, particularly in the Asia and Pacific region on surging demand there," he said. "As a result, newcomer airlines now can't really get pilots either in Japan or from overseas."

"Skymark also doesn't have enough resources to deal with the shortage problem, such as training its own pilots, because it hasn't been able to realize scale of economy in a market dominated by JAL and ANA," he said.

Budget travel has been booming in Asia, following a similar trend in the United States and Europe, with the launch of low-cost carriers ranging from Malaysia's AirAsia and Australia's Virgin Blue to Singapore's Tiger Airways.

Skymark was established in 1996 and took off two years later to break into a Japanese air travel market already dominated by JAL and ANA.

Skymark spokesman Shuichi Aoyama said that with the absence of two pilots, the airline could expect some unexpected flight cancellations, and decided it would be better to cancel them ahead of time to limit further problems for its customers.

"The battle to secure pilots is accelerating in Asia as the number of discount airlines increases due to emerging economies such as China and Southeast Asian countries," he said.

The spokesman said it was still unclear whether its flight schedule would return to normal in July.

Skymark also said it was in the process of switching all of its fleet from Boeing 767 aircraft to smaller and more fuel-efficient Boeing 737 aircraft by 2010, but the two pilots who retired had licenses for the 737.

Fitch's Aoyama said the shift to smaller aircraft was crucial to achieve more efficient operations, but it also indicated limited growth potential.

"It's correct to use smaller planes to boost efficiency, but at the same time, it means the airline sees limited demand and growth prospects for its business," he said.

Shares of Skymark closed down 9.4 percent at 193 yen, compared with a 1.6 percent fall in the benchmark Nikkei average .N225.

Among Skymark's regional peers, Hong Kong-based budget carrier Oasis Hong Kong Airlines said in April it had halted flights and would go into liquidation after just 17 months in the air as record high fuel prices and stiff competition triggered heavy losses.

(Reuters)