Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on December 28, 2020 - January 3, 2021

COVID-19 threw all Malaysia-based airlines a curveball this year, just as they were looking to the recovery of their business after a tough 2019 financially amid overcapacity and fierce market competition. The pandemic dealt a severe blow to the aviation industry not only here in Malaysia but also globally, resulting in a battle for survival in a year dubbed “the worst year in aviation history” by the International Air Transport Association (IATA).

The casualties of the pandemic include Britain’s Flybe, Virgin Australia, South Africa’s Comair and South African Airways, Latin America’s Latam Airlines and Colombia’s Avianca.

Others are surviving but with layoffs and debt restructuring. Major airlines in Malaysia, namely Malaysia Airlines Bhd (MAS), AirAsia Group Bhd and its long-haul affiliate AirAsia X Bhd (AAX), and Malindo Airways Sdn Bhd have also shed thousands of jobs without government aid this year after grounding most of their planes following the Movement Control Order (MCO) in March to preserve cash flow. AirAsia Japan became the first airline casualty of the pandemic within the AirAsia group to cease operations in early October.

MAS and AAX have warned that unless they get approval for their debt restructuring, they could be wound up.

Dashed hopes

The loss-making national carrier MAS was set to continue its growth momentum in 2020 financially and operationally, but the pandemic caused an unprecedented lockdown across the globe, forcing all airlines in the country to halt operations and ground almost all their fleet from March.

It was one of the earliest airlines to cut costs and conserve cash by introducing salary cuts for the entire management team, offering voluntary unpaid leave, seeking payment deferrals and renegotiating contracts in order to survive.

With the pandemic still showing little sign of improvement with a resurgence in some markets and tight border restrictions remaining in place for its key markets, MAS announced in October that it had reached out to its lessors, creditors and key suppliers as it embarked on an urgent debt restructuring exercise. In the meantime, it has requested financial support from its sole shareholder Khazanah Nasional Bhd as talks protract.

At the same time, AAX is seeking to get its creditors and lessors to agree to a plan to restructure RM2 billion of current debts and another RM61 billion in future liabilities, which are mainly linked to purchases and leasing of planes. It had also announced its intention to raise up to RM500 million after obtaining the approval of its creditors and lessors for the proposed debt restructuring scheme.

On Nov 24, when announcing its third-quarter results ended Sept 30, 2020, AirAsia Group CEO Tan Sri Tony Fernandes said the region’s largest low-cost airline is in the midst of securing commitments from banks for the Danajamin Prihatin Guarantee Scheme in Malaysia and other bank financing in other markets. Other capital-raising opportunities — including a potential rights issue — are in discussion. In October, AirAsia had secured a RM300 million loan from Sabah Development Bank Bhd.

“We foresee sufficient liquidity in 2021 with the expectation of upward growth trajectory in air travel demand amid the further formation of travel bubbles and green lanes. As we speak, a number of Covid-19 vaccines are close to final stages of testing. We have high hopes that with the availability and accessibility of effective vaccines, AirAsia will soon paint the skies red again. These external factors are positively contributing to expedite the recovery in air travel, which we expect to bounce back by mid-2021,” he added.

Deep losses to continue until end-2021

IATA estimates global airlines to lose US$118.5 billion (RM481 billion), or US$66 for every passenger carried, this year and a further US$38.7 billion in 2021, turning cash positive only at the end of 2021.

On Dec 8, the airline grouping’s director-general and CEO Alexandre de Juniac said the US$173 billion of support provided to date has enabled the airline industry to survive, but more is required to carry the industry through to next summer. “Without aviation’s US$3.5 trillion contribution to global GDP, there can be no broader economic recovery,” he added.

Malaysian Aviation Commission (Mavcom) forecasts in its December 2020 edition of Waypoint that the revenue-at-risk for Malaysian and foreign carriers operating out of the country is estimated at a higher RM14.3 billion and RM6.7 billion respectively this year, compared with the previous estimates of RM11.3 billion and RM4.6 billion.

The aviation regulator, meanwhile, is expecting passenger traffic this year to contract by between 72.8% and 75.7% year on year (y-o-y), which translates into between 26.6 million and 29.7 million passengers, given the expected lower load factor and longer period of seat capacity recovery by airlines.

However, Mavcom sees passenger traffic rebounding in 2021, by between 94.2% and 100.3% y-o-y, translating into between 51.7 million and 53.3 million passengers. “Airlines are expected to gradually expand seat capacity as international travel restrictions are presumably lifted in 2021. This forecast however, relies chiefly on the performance of the industry, which is dependent on a range of external factors including the pathway of the Covid-19 pandemic, public health measures as well as consumer behaviour,” it adds.

Airports not spared from travel woes

Meanwhile, the relationship between AirAsia Group and its landlord, Malaysia Airports Holdings Bhd (MAHB), remained tumultuous this year, with a new lawsuit launched against AAX for outstanding aeronautical charges, as well as for the removal of the airport operator’s classification as an unsecured creditor under AAX’s proposed debt restructuring scheme. The legal case is still ongoing.

MAHB has not been spared from troubles, either. The group, which manages 39 airports in the country, swung to a net loss of RM431.17 million for the cumulative nine months ended Sept 30, 2020, from a net profit of RM507.53 million a year ago, owing mainly to a significant decrease in revenue of 58.6% y-o-y, in tandem with a 65.5% contraction in passenger movements, due to global travel restrictions because of the pandemic and MCO.

According to Mavcom, the Kuala Lumpur International Airport’s (KLIA) air connectivity ranked sixth place in Asean this year, dropping from third place in 2019. This drop in ranking was due to a 95.8% y-o-y reduction in the number of international seats from Kuala Lumpur, which was recorded as one of the largest reductions among the major airports in Asean due to the Covid-19 pandemic.

AllianceDBS Research transport analyst Siti Ruzanna Mohd Faruk says the outlook for international travel remains dim for MAHB as borders remain closed.

“However, we expect a recovery to be underway for domestic travel as the restrictions on interstate travel have been lifted with effect from Dec 7 under the Conditional MCO. We believe with interstate travel, domestic tourism should recover as many will take advantage of the promotions and packages offered by hotels,” Siti Ruzanna writes in a Dec 11 report.

“We expect MAHB’s earnings to rebound in 2021 as the pandemic eases and a vaccine is rolled out. This could spur travel demand both domestically and internationally. We believe its passenger numbers would recover gradually from 2Q2020, when lockdowns were most restrictive.

“With the gradual normalisation of travel demand underway and MAHB handling almost all flight movements in the country, we believe its current valuation levels present an attractive buying opportunity for the stock,” she adds.

Industry players and Mavcom believe that the development of air travel bubbles will help restart international passenger movements.

The commission notes that previously, there were plans by Malaysia to establish travel bubbles with New Zealand, Australia, Japan, Singapore and South Korea that were previously considered as Covid-19 green zone countries. “However, the rise in the number of Covid-19 cases in many parts of the world, including Malaysia, may have put such plans on hold as many countries had re-introduced travel restrictions due to the rise in daily cases.”

Flying will never be the same

The future of air travel remains unclear, but in anticipation of the reopening of international borders, the aviation industry is looking to technology to make passenger air travel safer. Before the pandemic, airlines and airports were already investing in touchless technology and face-recognition tools to speed up the boarding experience. Now, there will be more of such non-contact tools.

According to experts, robot cleaners, new personal protective equipment uniforms for flight attendants and mandatory medical screenings could become standard aspects of future air travel. IGA Istanbul Airport in Turkey recently became the first airport in the world to use antiviral and antimicrobial uniforms.

Disinfecting has also taken on new importance during the pandemic, with KLIA introducing an ultraviolet disinfection technology that interrupts the transmission of airborne infectious pathogens in its toilets.

In November, the International Civil Aviation Organization’s (ICAO) Council Aviation Recovery Task Force came up with guidelines to provide the groundwork for the multi-layered biosafety measures already implemented by the industry, such as physical distancing, the wearing of masks, routine sanitation and disinfection, health screening, contact tracing and passenger health declaration forms.

 

 

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