Tuesday, July 5

Airlines may have to merge, form alliances to weather Covid-19 — Economist


Dr Yeah Kim Leng

KUALA LUMPUR: Travel restrictions and border shutdowns to stem the spread Covid-19 has put airline operators under great pressure, with some resorting to ‘hibernate’ during these hard times to mitigate the losses from piling up.

Airlines are struggling to keep their operation afloat and stave off bankruptcy, as a significant decline in air travel has resulted in lower seat capacity, yields and revenue.

Economist Dr Yeah Kim Leng said some airlines, especially private entities, might need to consider mergers or strategic alliances such as code-sharing agreements with other airlines in order to survive.

The former professor of economics at Sunway University Business School said as the pandemic shows no sign of abating, it would be difficult for the world’s economy to normalise in one year once COVID is contained.

“The V-shape recovery is impossible because of the severity of the economic impact – lockdown, ban on travel, ban on mass gathering. And always remember that not all countries can recover at the same time.

“Hence, it will take a longer period for the global economy to normalise. It is best to brace a 12- to 18-month downturn gradual recovery,” he told Bernama.

Earlier today, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed said airline companies, including some of the most well-known in the industry such Emirates and Singapore Airlines were facing their biggest challenge due COVID-19.

He also acknowledged that the airline industry would need a separate action plan although there was no announcement in terms of assistance in the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) announced by Prime Minister Tan Sri Muhyiddin Yassin on Feb 27.

Low-cost airline, AirAsia has temporarily suspended all international flights for operations in Malaysia, Thailand and the Philippines due to the pandemic.

AirAsia Malaysia has also temporarily suspended all its international and domestic flights from March 28 to April 21, 2020.

The national carrier Malaysia Airlines has also significantly reduced its overall network, due to the nationwide Movement Control Order (MCO), which has been extended for another two weeks until April 14.

According to the International Air Transport Association’s (IATA), annual passenger revenues will fall by US$252 billion if severe travel restrictions remain in place for three months, representing a 44 per cent decline compared to 2019.

“The airline industry faces its gravest crisis. But without immediate government relief measures, there will not be an industry left standing,” it said in a statement recently, citing airlines need US$200 billion in liquidity support simply to make it through.

Dr Yeah said it would be very challenging for any airline operator to survive without a massive lifeline of financial support from the respective governments to prevent a liquidity crisis, within the company and industry at large.

“Ideally, from market perspective, the bankruptcy would be the least impact on tax payers’ money. But if they (airlines) do not get bailout from governments, they may just have to file for bankruptcy.

“This is not only for Malaysian carriers, but (that of) regional as well,” he pointed out.

Worldwide, airlines are scrambling to secure bailouts and some have been successful. Some governments have already stepped forward in helping the industry to weather COVID-19 with relief packages based on waivers of fees and charges and state-backed loans, among others.

The New Zealand government has announced a NZ$900 million (US$580 million) loan facility for its national carrier, as well as an additional NZ$600 million relief package for the aviation sector.

Australia has introduced an A$715 million (US$430 million) aid package, comprising refunds and forward waivers on fuel taxes, and domestic air navigation and regional aviation security charges.

The Danish and Swedish governments have announced loan guarantees to the national carrier totalling 3.0 billion Swedish crowns (US$302 million), while the Norway government would provide a conditional state loan-guarantee totalling NKr6 billion (US$533 million).

Brazil is allowing airlines to postpone payments of air navigation and airport fees, while Hong Kong is providing a total relief package valued at HK$1.6 billion (US$206 million) for the airport community.

Closer to home, the Singapore government is providing S$112 million (US$82 million) in relief measures, including rebates on airport charges, assistance to ground handling agents, and rental rebates at the Changi Airport.

Its national carrier, Singapore Airlines recently secure an additional S$19 billion (US$13 billion) bailout from its state investor, Temasek Holdings and the country’s biggest bank, DBS Group Holdings Ltd, to help see it through the pandemic and expand afterward. – Bernama