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Asian airlines adapt to coronavirus pandemic

Singapore airport, less Asian airlines landing due to coronavirus
Singapore Airport, June 2020, phase 2 re-opening, coronavirus (Source: kandl stock / Shutterstock.com)

Asian airlines, like others globally, are suffering significantly in 2020. The impact of the coronavirus pandemic on the entire airline industry is huge. According to the International Air Transport Association (IATA), the airline industry cannot slash costs sufficiently to neutralize severe cash burn to avoid bankruptcies and preserve jobs in 2021. In its latest forecast in October, IATA estimates total industry revenues in 2021 to be down 46% compared to the 2019 figure of $838 billion.

This figures comes while global passenger air traffic remains highly depressed. According IATA, international passenger demand in September plunged 88.8% compared to September 2019. The numbers for August are similar or how Alexandre de Juniac, IATA’s Director General and CEO, put it: “We have hit a wall in the industry’s recovery.”

Asia-Pacific airlines’ September traffic sank 95.8% compared to the year-ago period – the steepest fall compared to the other regions.

China air traffic could recover faster

Also, the outlook is rather dimm. Fitch Ratings expects the APAC market passenger traffic to remain substantially below 2019 levels even in to 2021. However, passenger volume will depend, at this stage, on how Covid-19 is controlled internationally. If a vaccine is distributed and widely available in 2021 or sooner, Fitch expects that air passenger traffic could recover faster.

China, which has seen a rapid recovery due to effective containment measures, could see average air traffic numbers in 2021 reach 2019 levels, according to Fitch, – if the country escapes another wave of Covid-19. Total air traffic for China is expected to be 40% lower in 2020, with a less steep 30% decline domestically.

In March 2020, China’s passenger air traffic across its six major airlines shrunk by 69%, as per Fitch, but recovered to just 19% below August 2019 figures in the comparable August 2020 period.

The report further notes that passenger traffic for Vietnamese airlines may recover faster than other Southeast Asian markets as the country has a lower number of Covid-19 cases. As Singapore Airlines has more dependence on international routes its road to recovery may be slower. Indonesia and the Philippines are expected to see around 60% of 2019’s passenger air traffic levels in 2021, figures likely to be mirrored in the performance of Thailand and Malaysia’s airlines.

Pandemic requires adaptation of airlines

Asian airlines are responding to the global crisis and its affects by restructuring, capital increases and, in some cases, mergers. Governments in Asia are also considering financial options in order to protect their national airlines and industries.

Japan’s ANA Holdings is expecting a $4.8 billion loss in its fiscal year to March 2021, nearly 10 times greater than the loss it reported during the global financial crises. ANA is restructuring and re organizing routes, planning to reduce its fleet by 10%, and planning its routes to complement its budget carrier Peach Aviation.

Competitor Japan Airlines Co. (JAL) recently announced that it will raise $1.6 billion through a public stock offering this year.

Singapore Airlines raised $6.5 billion additional equity in June and recently placed a 632 mio USD convertible bond issue for institutional investors. The carrier expects 50% of normal capacity until at least March 2021 and is cutting over 4,000 jobs.

Hong Kong’s Cathay Pacific Airways is cutting around 24% of its workforce and closing regional network Cathay Dragon.

Asia’s largest low-cost airline runs out of money

Malaysian AirAsia, Asia’s budget carrier, is reporting a $433 million loss for the first half of 2020 and is closing AirAsia Japan after just three years in the market. Where it once competed with Malaysia’s flag carrier Malaysia Airlines, now both are struggling, and both are likely to receive government aid. AirAsia gained a state-backed 1-billion-ringgit loan in October and its long haul division AirAsiaX has applied through the courts for a debt slashing plan to cut its liabilities.

Malaysia Airlines announced debt restructuring negotiations with creditors in October. It was already beleaguered by the two 2014 air tragedies and has not made a profit since 2011. Malaysia’s government so far appears unwilling to offer further aid to the airline, but experts suspect the government will eventually relent and help its flag carrier.

In South Korea, the country’s two largest carriers are fighting to survive the coronavirus pandemic by a merger. Korean Air Lines will take over smaller rival Asiana Airlines in a government-backed deal.

But there is some glimmer of hope for the industry: The latest news on vaccines could help to revive the depressed travel sector. Meanwhile, Hong Kong and Singapore will test “the world’s first leisure travel bubble” – quarantine-free trips between the two cities starting November 22.