Tuesday, August 11

Flights’ plight: How Covid-19 rattled travel and tourism

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The Coronavirus Disease 2019 (Covid-19) has had an unprecedented devastating impact as countries closed borders, implemented movement restrictions and temporarily shut businesses to curb its global spread.

More so pronounced is its effect on the travel and tourism industry, which was earlier thriving on the back of consumers’ rising income and standard of living in emerging markets.

In 2019, the travel and tourism industry contributed 10.3 per cent of the global gross domestic product (GDP) according to the World Travel and Tourism Council (WTTC). The industry generated one in four of the world’s new jobs and, for nine successive years, outpacing the growth of the global economy.

In its annual Economic Impact Report (EIR), Asia Pacific was highlighted as one of the fastest growing region last year, driven by the continued growth in middle income households, visa facilitation, improved connectivity and government prioritisation of the sector.

“The travel and tourism sector generated US$2,971 billion towards GDP, or 9.8 per cent of the region’s economy,” it said.

“International visitor spent a total of US$548 billion, representing 6.6 per cent of the region’s total exports.”

In the report, Malaysia and Vietnam witnessed significant growth – up 6.6 and 7.7 per cent respectively – with both displaying an even split between domestic and international visitor spending.

Majority of the travel and tourism spending in both countries came from leisure travel, with Malaysia attributing 86 per cent of visitor spending to leisure.

However, all this has changed this year. The very act of travelling for is now subject to stricter regulations, with governments limiting travels between borders except for the necessary to combat the spread of Covid-19.

According to the International Air Transport Association (IATA), travel restrictions will deepen the impact of recession on demand for travel and the most severe impact is expected to be felt in 2Q.

“As of early April, the number of flights globally was down 80 per cent compared to 2019 in large part owing to severe travel restrictions imposed by governments to fight the spread of the virus,” it said in a statement last month.

“The turn of events as a result of Covid-19 is almost without precedent. In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse.

“It is unclear how the virus will develop, but whether we see the impact contained to a few markets and a US$63 billion revenue loss, or a broader impact leading to a US$113 billion loss of revenue, this is a crisis,” IATA director general and chief executive officer Alexandre de Juniac said.

“Many airlines are cutting capacity and taking emergency measures to reduce costs. Governments must take note. Airlines are doing their best to stay afloat as they perform the vital task of linking the world’s economies.

“As governments look to stimulus measures, the airline industry will need consideration for relief on taxes, charges and slot allocation. These are extraordinary times.”

IATA noted that domestic markets could still see the start of an upturn in demand beginning in 3Q in a first stage of lifting travel restrictions.

However, it pointed out that international markets could be slower to resume as it appears likely that governments will retain these travel restrictions longer.

Malaysia not spared by slowdown

Malaysia’s tourism is not spared from this. According to figures from Malaysia Airports Holdings Bhd’s (MAHB), in February, airports saw a 23.4 per cent y-o-y decline in the number of passengers that travelled through Malaysia as the Covid-19 outbreak weighed on passenger traffic.

Passenger traffic among MAHB’s 39 airports in Malaysia declined 23.4 per cent y-o-y to 6.24 million passengers, from 8.15 million passengers last year.

Both international and domestic travellers saw reductions in February. In the case of international passengers, traffic fell 29.7 per cent to 2.95 million passengers, from 4.19 million passengers registered in February 2019.

The declining trend worsened in March, whereby passenger movements throughout its network of airports in Malaysia plunged 63.6 per cent y-o-y to 3.2 million passengers in March 2020.

International and domestic passenger movements declined by 27.8 per cent and 20.3 per cent with 11.6 million and 13.9 million passenger movements respectively.

“Total aircraft movements decreased by 11.8 per cent while the international and domestic aircraft movements declined by 16.1 per cent and 8.9 per cent respectively,” MAHB said.

Malaysian airports registered a decline of 27.6 per cent with 18.4 million passenger movements. International and domestic passenger movements decreased 32.4 per cent and 22.4 per cent respectively.

This will translate into an expected loss of RM3.37 billion within the first two months of the year, said Prime Minister Tan Seri Muhyiddin Yassin.

“I am aware that some of you are economically affected by the outbreak of this disease. Some are asked to take time off, work from home, and even lose their jobs. Economically, the sectors most affected are tourism, small and medium enterprises, and the transport industry.

“Tour packages are cancelled and this affects those who work with airlines and hotels. The estimated total loss in the tourism sector from January to February 2020 was RM3.37 billion. The government estimates Malaysia’s GDP decreased by 0.8 per cent to 1.2 per cent, a decrease of RM10.8 billion to RM17.3 billion,” he said in a special address on March 13.

Cancellation of Malaysia’s tourism efforts

Domestically, the government was quick to cancel its ongoing Visit Malaysia 2020 in light of the Covid-19 outbreak.

Tourism, Arts and Culture Minister Datuk Seri Nancy Shukri in mid-March revealed this, affirming that the pandemic had affected the local and international tourism sector.

“This is effective immediately,” she said in a statement, which also announced the freeze of all over-the-counter and online services for the ministry’s tourism licensing division.

“They include the ministry’s state offices concerning tourism licensing such as tour guides, tour drivers, tourism training institutes and the registration of tourism accommodation premises, rated spa centres and foot massage centres until March 31,” she said.

Nancy said in line with the announcement by the National Security Council regarding the two-week movement control order, all tourist accommodations would be permitted to operate at a minimum level.

Moving forward, what will the ‘new normal’ for be for the travel and tourism sectors when we return to some sense of normalcy? BizHive Weekly takes a look at the harsh impact of Covid-19 on sectors under the travel and tourism industry.

Airports: Staying guarded on ground

Before Covid-19 became a pandemic that brought the world to a standstill, most analysts could not predict the severe impact it would have on economies worldwide.

As travel restrictions are imposed by major economies worldwide, the travel industry becomes the first and one of the most badly affected by this pandemic. With travel restrictions and closed borders, airlines grind most of their operations to a halt and this had undoubtedly affected airports worldwide which depend on passengers brought in by these airlines.

Across Asia-Pacific, IATA pointed out that major Asia-Pacific states could see passenger demand in 2020 reduced by between 34 to 44 per cent, based on a scenario where severe restrictions on travel are lifted after three months, followed by gradual recovery.

“Based on a scenario in which severe travel restrictions last for three months, the Asia-Pacific region as a whole will see passenger demand reduced by 37 per cent this year, with a revenue loss of US$88 billion.

“While each country will see varying impact on passenger demand, the net result is the same – their airlines are fighting for survival, they are facing a liquidity crisis, and they will need financial relief urgently to sustain their businesses through this volatile situation,” said IATA Asia-Pacific regional vice president Conrad Clifford, in a statement.

Within the country, MAHB saw its airports recording a near 30 per cent year-on-year (y-o-y) drop in passenger traffic in the first quarter of 2020 (1Q20).

In March alone, MAHB’s Malaysia passenger movements contracted by 63.6 per cent while international and domestic passenger movements decreased by 71.8 and 55.3 per cent respectively, level not seen since 2009.

“The overall passenger movement for the network of airports has been affected by Covid-19 and the travel restrictions imposed since March 2020. Airports in Malaysia registered decreasing passenger movements from the end of January 2020 and the rate of decline significantly increased from March 18, 2020 corresponding to the Movement Control Order (MCO) announced by the government that restricted both Malaysians and foreigners from travelling to and from Malaysia.

Impact felt from China

MAHB noted that the impact of the Covid-19 outbreak was felt as soon as China imposed lockdowns in several provinces and the World Health Organization declared the outbreak a public health emergency of international concern.

“This led to airlines announcing temporary flight suspensions and flight cancellations, and travel restrictions imposed by certain countries,” it said in a filing to Bursa Malaysia.

“The decline in traffic due to the SARS outbreak continued for several months and eventually picked up when the decline in infected cases reduced and travel confidence resumed,” it said.

“A similar scenario was observed during the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003, when there was a sharp decline in traffic in the first month of impact that continued to peak for the following two months.

“Moving forward, the traffic recovery would depend on the speed and extent at which Covid-19 spread is brought under control at the domestic level as well internationally.

“While China seems to be recovering, the international flights to Malaysia would only resume if the contagion level in Malaysia is at a level that would encourage cross border travel,” it said.

The airport operator said its overall passenger traffic had been affected by Covid-19 and the travel restrictions imposed since March.

“Airports in Malaysia registered decreasing passenger movements from the end of January 2020 and the rate of decline significantly increased from March 18, 2020 corresponding to the Movement Control Order (MCO) announced by the government that restricted both Malaysians and foreigners from travelling to and from Malaysia,” it added.

MAHB said the prime initiator of air travel would be the level of control of the Covid-19.

“We begun proactively executing group-wide optimisation plan to ensure we are able to meet our financial and operational obligations.”

This included reviewing operational efficiencies, rebasing cost, prioritising capital expenditure and conserving cash to safeguard its financial resilience while ensuring business continuity under difficult conditions.

Upholding strict SOPs

Even before the Covid-19 became a worldwide crisis, MAHB have already implemented strict SOPs for inbound travels earlier this year, including health screenings at terminals, travel checks and others, especially for passengers coming in from countries such as China, South Korea and Japan, which were initially heavily affected by the Covid-19 outbreak.

With restrictions lifted domestically and airlines going back in the air, MAHB said it has stepped up its SOPs even more by implementing additional precautionary measures to ensure the safety of passengers as domestic air travel resumes.

Among the new measures include making the use of face mask compulsory when entering the terminal building. The airport operator will also be facilitating the Ministry of Health in carrying out the rapid tests at KL International Airport.

In the months ahead, MIDF Research believed that while the MCO will adversely impact international passenger traffic, such sacrifice is of utmost importance in containing the Covid-19 pandemic.

“As such, we continue to reaffirm our view that the passenger traffic will see a nascent recovery in 2H20 provided that the Covid-19 pandemic subsides,” it opined.

“Our basis for the upside in 2H20 comes after airlines in China such as Air China has filed domestic schedules for the week-long May holidays that offer similar capacity to 2019 levels, a remarkable sign of planned domestic aviation recovery.

“The flight resumption patterns established in China may offer some guidance to the rest of the world, just as China’s strict containment measures have also provided cues to efforts elsewhere,” it added.

It also believed that Malaysia’s containment efforts would likely flatten the rate of infection, enabling MAHB’s passenger traffic Malaysia to hit the 70.7 million mark in 2020 before recovering in 2021.

AirAsia not spared from slowdown

Airlines worldwide face an unprecedented existential threat as the Covid-19 coronavirus shuts down global travel, leaving governments with controversial and costly decisions about which carriers to bail out.

Fear, travel bans and investor panic have crippled the sector, with demand collapsing and carriers cutting flight capacity by up to 90 per cent, leading some towards the brink of bankruptcy.

“By the end of May 2020, most airlines in the world will be bankrupt,” warned market intelligence firm CAPA.

Homegrown low cost carrier AirAsia is not spared from this. AirAsia’s 1QFY20 operating statistics were generally lower across the board, reporting a group-wide load factor of 80 per cent as Kenanga Investment Bank Bhd (Kenanga Research) expect lower loads in subsequent quarters due to travel restrictions caused by the pandemic.

“Over the medium term, even when the services are reinstated, the road to recovery for air travel might take longer than expected,” it said in an end-April report.

“We are expecting more losses ahead following the Covid-19 pandemic which is taking its toll on airlines operators including AirAsia due to the restrictions and virtual collapse in air travel.

“As such, over the medium term, we expect AirAsia to face an extremely tough operating environment derailed by widespread travel disruptions due to Covid-19, and to be hit by both lower ticket prices and load factor which are likely to drag down yields, and hence a very challenging earnings outlook ahead.

“With a net cash of RM2.2 billion as at December 31, 2019, we expect AirAsia to be able to weather through this COVID-19 crisis and hopefully without deteriorating its balance sheet.”

This sentiment was echoed by AirAsia founder Tan Sri Tony Fernandes in a special message through AirAsia’s website, citing this to be “possibly the biggest challenge we have ever had to face.”

“There’s no denying that our industry has been hit hard, and we are no exception. We have no revenue coming in, 96 per cent of our fleet is grounded and we still have significant ongoing financial commitments such as fuel suppliers and leasing agents,” he said.

“We are doing everything possible to reduce costs during this time so we can come back fighting as fast as possible and continue to be the world’s best low cost carrier, enabling everyone the ability to fly with our great value and service.”

Fernandes affirmed that AirAsia is one of the few airlines world over who has kept all of its staff on.

“AirAsia is a family and there are tens of thousands of Allstars who depend on the business for their livelihoods and the wellbeing of their own families,” he continued.

“Co-founder Datuk Kamarudin Meranun and I will not be taking a salary during this period and Allstars from across the business have accepted temporary pay reductions of anywhere between 15 to 75 per cent,depending on seniority, to share the impact this is having on our business. I thank them for their sacrifice and in keeping the big picture in mind as we navigate this together.

“In spite of all these challenges, I want to assure you that AirAsia is strong and remains firmly focused on the future and serving you, our guests. I also want to express my heartfelt thanks and appreciation to all of you for your loyalty to AirAsia and I hope that you and your loved ones are healthy and well throughout this trying time.

“We’ve never had a time like this before and we are doing our best. We are not always perfect but we strive to do all we can for our people and our customers at all times. This is unprecedented but it is also temporary and we will be back, stronger than before, repainting the skies red and making sure everyone can fly again.”

Thumbs up on brand recognition

AirAsia Group is among the top airline brands that are well positioned to survive the Covid-19 crisis, judging from its cash position, brand strength and brand value, says independent brand valuation consultancy Brand Finance.

Brand Finance recently released its annual report on the most valuable and strongest airline brands – the Brand Finance ‘Airlines 50’ for 2020.

AirAsia was the only low cost carrier from Asean featured on the list, registering a 15.5 per cent year-on-year growth in brand value – the highest in Asia and the second highest amongst all airlines globally, thus making it one of the top 25 most valuable airline brands in the world.

In its 10 Strongest Brands ranking of the report, AirAsia was rated as having the highest year-on-year increase and one of only four airline brands in the world to have an AAA+ rating. This was based on marketing investment, familiarity, loyalty, staff satisfaction and corporate reputation.

Brand Finance Asia Pacific managing director Samir Dixit commented: “While there were very few brands that had positive brand value growth, AirAsia found itself to be a strong contender with some of the best brands in the world.

“This can undoubtedly be attributed to the consistency of brand experience and the brand building efforts by AirAsia across customers and other stakeholders.

“The current Covid-19 crisis presents a dangerous threat to airlines, and will not be easy to manage given that airlines will struggle to recapture lost demand and could lose up to 20 per cent of overall brand value.

“The only thing that will drive customer preference in difficult times is the brand and the airline brands that are weaker may not even survive the crisis. Based on our criteria, we found AirAsia to be one of the 30 global airline brands well poised to survive the Covid-19 crisis.”

Returning to service stronger

Another good news came in the form of AirAsia resuming its scheduled domestic flights towards the end of April, followed by Thailand (May 1, 2020), the Philippines (May 16, 2020), and Indonesia (May 7,2020), subject to approval from the authorities.

Strict health controls and social distancing protocol are in place, in compliance with the regulations. The resumption of services will initially be for key selected domestic routes, which will increase gradually to include international destinations around the region, once the situation improves and governments lift borders and travel restrictions.

Executive chairman of AirAsia Group, Datuk Kamarudin Meranun said: “Flexibility remains the key to our business model. Our strong foundation coupled with robust relationships with suppliers and partners have enabled us to return to service stronger amid these unprecedented challenging times.

“We do not intend to take any new aircraft deliveries this year with the target to end 2020 with 242 aircraft, a net reduction of 1 aircraft from last year.”

Kamaruddin said they were relooking at its orderbook with Airbus.

“The decision to sell and lease our aircraft in late 2018, has provided us greater flexibility to scale back growth than owning aircraft today. We were also able to lock in the best price for those aircraft at prime market conditions while eliminating the residual risk of owning aircraft.

“We have also restructured a major portion of the fuel hedges with our supportive counterparties and are still in process of restructuring the remaining exposure.

“This will help deal with the excess of hedged volume against expected fuel consumption post-COVID-19 and reduce the hedging losses if fuel price remains at today’s prices.

“Further measures in managing and containing cost include both the management and senior employees of AirAsia Group volunteering a salary sacrifice, re-negotiating contracts and deferring all non-essential expenditures.

“We expect all these initiatives to result in at least a 30 per cent cost reduction y-o-y in 2020.”

“Despite the unprecedented environment we are currently in, we are continuing to build on our strengths and especially our brand so as to emerge stronger when normalcy returns,” Kamaruddin said.

“We hope to continue to sustain the 1.3 million jobs and counting in the sector in the region, directly and indirectly, and double our economic contribution to Asean’s GDP from US$15.3 billion in 2018 to US$35 billion in 2030.”

Future of travel up in the air

While the end of the fight against the Covid-19 pandemic is still far from sight, there is still light at the end of the tunnel as countries increase their efforts in implementing more stringent SOPs between borders to safeguard the public’s health.

Across the world, nations are slowly ending their Covid-19 lockdowns and movement restrictions, allowing certain businesses to operate as well as domestic travels under strict regulations. It could be a matter of time now, before nations worldwide begin to open their borders.

However, as the fight against Covid-19 is expected to last for at least a year or so, how will travelling look like in this “new normal”? Will passenger traffic between countries be as vibrant as before?

According to an April survey by IATA, about 40 per cent of passengers in 11 countries it has conducted its survey in said they would likely wait at least six months or more, before travelling again, while 47 per cent said they would wait a month or two before travelling.

The World Travel and Tourism Council (WTTC) said the travel and tourism sector could face a gradual return to travel over the coming months as a “new normal” emerges before a vaccine becomes available on a mass scale, large enough to inoculate billions of people.

In a statement, it believed travel will likely to return first to domestic markets with staycations; then to a country’s nearest neighbours before expanding across regions, and then finally across continents to welcome the return of journeys to long-haul international destinations.

WTTC believed younger travellers in the 18 to 35 age group, who appear to be less vulnerable to Covid-19, might also be among the first to begin travelling once again.

WTTC president and CEO Gloria Guevara commented: “It is vital for the survival of the travel and tourism sector that we work together and map out the road to recovery, through coordinated actions, and offer the reassurance people need to begin travelling once again.

“We have learned from past experiences that when the protocols from private sector are taken into account and we have a coordinated approach the recovery timeframe is significantly reduced, so the private-public sector collaboration is crucial.

“We should avoid new, unnecessary procedures that create bottle necks and slow down the recovery.

“However, a quick and effective restart of travel will only happen if governments around the world agree to a common set of health protocols developed by the private sector, such as those we’ve outlined.

“These must provide the reassurance travellers and authorities need, using new technology, to offer hassle-free, pre-vaccine ‘new normal’ travel in the short term.”

It noted that currently, new protocols and standards are being defined following feedback and multiple conversations with WTTC Members, as well collaboration from associations who represent the different travel sectors.

This includes IATA, the Airport Council International (ACI), Cruise Lines International Association (CLIA), United States Travel Association (USTA), Pacific Asia Travel Association (PATA), International Civil Aviation Organisation (ICAO) the Organisation for Economic Co-operation and Development (OECD) the European Travel Commission (ETC) and the World Tourism Organisation (UNWTO).

IATA, ACI and ICAO are currently gathering their crucial expertise and are working closely to define the best protocols to keep travellers and employees safe to enable the aviation sector to recover.

“There will be new protocols for check-in involving digital technology; hand sanitiser stations at frequent points including where luggage is stored, contactless payment instead of cash, using stairs more often than lifts where the two metre rule can be harder to maintain, and fitness equipment being moved for greater separation among other examples.

“Cruise operators will take further measures to ensure ships are free of Covid-19 including staff wearing gloves at all times which are then frequently changed, and more frequent room cleaning.

“Travellers at airports will find themselves tested before they fly and upon arrival at their destination airport. They can expect to see social distancing measures at the airport and during boarding, as well as wearing masks while onboard.

“Aircraft will also be subject to intensive cleansing regimes. These measures will be combined with contact-tracing, via mobile app, that will allow flights to leave airports Covid-19-free,” it said.

All in, it pointed out that public-private collaboration between business and governments is vital to develop new health protocols which will form the travel experience and also provide people with strong reassurances when travelling.

Call on govts for financial assistance

On this, Airports Council International (ACI) World and the International Air Transport Association (IATA) have come together to call for governments to quickly grant financial relief to assist airport operators and airlines during the unprecedented COVID-19 crisis and support the essential connectivity the industry will provide for economic recovery.

“The industry is united with governments around the world in efforts to stop the spread of the virus, and, in the face of massive government imposed travel restrictions, the industry is doing all it can to maintain air cargo operations vital to supporting global supply chains, including medical shipments critical to fighting Covid-19,” both groups said in a joint statement.

“The economic impact of these measures on all involved in the global air transport industry has been severe. With passenger demand plummeting to unprecedented levels, revenues are falling beyond the ability of even the most extreme cost-cutting measures to mitigate.

“Airports and airlines continue to face a financial liquidity crisis.

“The current state of the global air transport industry risks the loss of millions of jobs. The aviation industry supports 65.5 million jobs around the world, including 10.5 million people employed at airports and by airlines, and supports US$2.7 trillion in world economic activity.

“As the Covid-19 pandemic continues to unfold, airports and airlines around the world are engaged in a battle to sustain essential operations and to preserve jobs.”

ACI and IATA are calling for urgent balanced support to the industry via taxation relief, including alleviation of payroll taxes, corporate taxes, concession fees or other government incomes from the industry; as well as loans in the form of loan guarantees or direct support to maintain financial liquidity across the aviation ecosystem.

Some governments have recognized the urgency of action but time is running out for other governments to provide the necessary financial relief to keep the whole industry viable and ready to support a balanced recovery including ground handlers and other service providers at airports.

“The financial impact of the current crisis is unlike anything we have ever seen and requires urgent action by governments to assist the aviation industry to protect jobs, ensure essential operations, and plan for recovery,” ACI World Director General Angela Gittens said.

“Urgent tax relief and direct financial assistance that is to the benefit of the entire aviation ecosystem is needed to help preserve millions of jobs, protect essential operations, and foster a balanced recovery.

“Preserving the continuity of operations for airports and airlines and protecting aviation jobs today will result in a faster economic recovery tomorrow.”

IATA’s Juniac said the situation could not be more dire.

“Governments will depend on aviation to be ready to lead an economic recovery when this pandemic is behind us,” de Juniac said.

“Governments must act now with financial lifelines that only they can provide for airlines and airports to see them through these extraordinary times. Airlines and airports are in this together.

“The more financially stable our airport partners are, the more they can help the industry to drive a recovery in air travel that will jump start the global economy.”