Asia’s air transport industry collapses

As Asian governments ramp up movement restrictions to curb the spread of Covid-19 throughout their respective countries, one particular international industry looks to be on the brink of a catastrophic collapse. After 11 straight years of healthy profits, the whole air transport industry has gone into an almost total shutdown.

Most airlines have mothballed the majority of their fleets, ordered staff on unpaid leave, with remaining staff taking drastic pay cuts. Airports, airport services, duty free shops, catering services, airport transport services, and car rental companies have also wound-down or even closed their operations in response to the airline industry’s state of suspended-amination.

The carnage is astonishing. The International Air Transport Association expects 2020 global revenue losses for the passenger business of at least US$63 billion up to US$113 billion in a scenario where COVID-19) hits more countries than the 60 originally forecast.The IATA already estimated that the industry had lost US$256 billion in revenue midway through March. That was when airlines were still operating around 75 percent capacity.

The virus has now spread to 200 countries or territories, an ominous sign that the worst-case scenario is more likely. No estimates are yet available for the impact on cargo operations. Lost revenues were predicted at only US$29.3 billion in February when the virus was largely confined to China. 

All the positive environmental factors driving the airline industry have disappeared almost overnight. City and country restrictions and in many cases total lockdowns have stopped just about all travel. Both international and provincial borders have been closed across the region. For those who can travel, heavy restrictions such as mandatory 14-day isolations have been enacted almost everywhere. Tourist destinations have faced hotel, shopping center, and tourist attraction shutdowns, leaving millions of people across the region at home without work.

This is a total disaster to the air transport industry that is heavily debt geared, running on fine margins due to market competitiveness, with high fixed and operating costs. Aircraft movements are down 95 percent on a couple of weeks ago, and those schedules still running are either operating as emergency services or flights well under full seating capacity.

However, even with an average international air travel growth rate of 7-8 percent over the last five years, and over 10 percent in the Asian region, driven by increasing consumer affluence, many regional airlines, including national flag carriers were in financial difficulty. Thai Airways, Malaysian Airline System, and Garuda Indonesia, were already either looking at financial bailouts, restructuring or selloff to survive even prior to the crisis.

In addition, many regional budget airlines are not too far away from the precarious situation the Indian budget Kingfisher Airlines found itself in back in 2012, with high market share, but unable to make a profit. Kingfisher Airlines heads a long list of now defunct regional airlines, including Rayani Air (2016), Siam Air (2017), Orient Thai Airlines (2018), and R Airlines (2018), among many other small companies. Tassapon Bijleveld, executive chairman of Asia Aviation, the majority shareholder of Thai Air Asia was reported as estimatingthat the company would only survive three months without a massive cash injection.

Covid-19 has hit Malaysia hard with the government declaring an extended lockdown and ban on interstate travel until at least the middle of April. According to the IATA, the sector employed 450,000 people and contributed US$5.2 Billion to Malaysian GDP in 2018. MAS has already cut its services by 80 percent, and expects to further cut services within the coming day, as it completes rescue missions retrieving citizens from overseas destinations. Around 5,000 employees have gone on three months unpaid leave.

Air Asia has followed suit and grounded most of its domestic Malaysian services and suspended international flights. Air Asia India has suspended all flights, while Philippine and Thai Air Asia have suspended all international flights. Air Asia Indonesia has drastically cut back on its domestic flights. Air Asia is in a particularly difficult position as its aircraft are leased from a bank consortium.

Malindo Air has suspended all domestic and international flights, and sent half its fleet to a sister company Batik Air, within the Lion Air Group. Staff have been requested to take initially two weeks unpaid leave which has been extended indefinitely. The small inter-city carrier Firefly is still running limited operations.

Thai Airways has suspended all international flights except for Cambodia. Thai Smile is continuing to fly a limited schedule on domestic routes. Thai Airways had been looking for ways to restructure and was contemplating leasing, rather than purchasing new aircraft, as old ones were decommissioned, and outsourcing cabin staff. The company received THB 11 billion from the governmentlast year to keep it financially afloat. Interestingly, the company is not providing refundsof cancelled flights to customers, but providing flight vouchers valid for one year.