To bail out or not: Governments decide whether to aid Asia’s embattled airlines
Few sectors have been hit harder by the economic fallout of the pandemic than the airline industry. Asia is expected to see the steepest dropoff in passenger revenue, with airlines in the region forecast to lose an estimated $113 billion this year. Air traffic there plunged 98% in April compared to the year before.
“Governments need to ensure that airlines have sufficient cash flow to tide them over this period,” Conrad Clifford, regional vice president for Asia-Pacific for the International Air Transport Association (IATA), said in an April 3 statement.
Clifford called for “direct financial support” from governments to airlines, loan facilitation, and tax and levy waivers. “[Countries] need to act now—and urgently—before it is too late.”
Several governments have heeded that advice, rushing to help cash-strapped carriers; other have so far failed to act, leaving some airlines to flounder.
On Tuesday, the Hong Kong government announced it will spend almost $4 billion to bail out the city’s flagship airline, Cathay Pacific. The airline had a net loss of $581 million in the first four months of 2020. Travel restrictions and border closures have battered Cathay particularly badly since, unlike other regions, it has no domestic flight routes to restart ahead of international borders opening.
The coronavirus was a second crisis for the embattled Cathay. It saw its revenue drop 3.7% year over year in 2019 after months of protests in Hong Kong, which prompted Cathay employee strikes, canceled flights, and several countries issuing travel warnings for Hong Kong.
To get itself through the downturn, Singapore Airlines announced on Monday that it has raised more than $7 billion from credit lines and a rights issue, with backing from Singapore government state fund Temasek Holdings, which owns 55% of the airline. Temasek also announced a $13.3 billion funding package for Singapore Airlines in late March.
Last month, the Thai government said it would submit a rehabilitation plan—similar to filing Chapter 11 bankruptcy in the U.S.—for Thai Airways, Thailand’s national carrier, eschewing a previous plan to lend the airline $1.81 billion.
Thai Airways could take as long as seven years to complete rehabilitation, its legal adviser said on Monday. The carrier had already been struggling financially before the coronavirus hit and grounded its entire fleet on April 4, save a few repatriation flights.
Malaysia-based AirAsia Group, Southeast Asia’s biggest low-cost airline, is slashing its 20,000-person workforce by up to 30% and cutting staff salaries by as much as 75% in an effort to save money in lieu of government financial aid. IATA named Malaysia as one of the countries that “[has] yet to take decisive and effective action” to support its aviation industry.
AirAsia founder Tony Fernandes, who said in April he was talking to the government about a possible loan, may also sell a 10% stake in the discount carrier to raise cash, the Nikkei Asian Review reported on Friday.
AirAsia shares rose the highest in three months on Tuesday after the Malaysian government said it would allow domestic tourism to resume from Wednesday.
Australia’s biggest airlines have shifted tactics now that government assistance is drying up. After the Australian government stopped subsidizing international flights for Qantas and Virgin Australia, the two airlines halted flights abroad.
Qantas will resume 15% of domestic flights by the end of June, which the government said it would continue to subsidize until September. Virgin Australia, meanwhile, has been up for sale since April, when it went into voluntary administration after the pandemic forced it to ground its fleet and led it to financial collapse.
Early signs of recovery for air travel in China—the first country to endure a coronavirus outbreak and the first to restart its economy—may offer hope to the rest of the region’s beleaguered airlines.
China’s three biggest airlines—Air China, China Eastern, and China Southern—suffered losses of more than $697 million each in the first quarter of 2020, but domestic travel started to pick up from March onward, as China emerged from its coronavirus lockdowns earlier than the rest of the world.
The future of air travel
The next step for the aviation sector after domestic travel rebounds may be international flights by way of “travel bubbles,” or designated zones encompassing several countries that have largely contained their COVID-19 outbreaks.
Australia and New Zealand hope to launch a “Trans-Tasman” travel bubble by September, and some Pacific island nations desperate for tourism income are also clamoring to join it. Japan plans to talk with Australia, New Zealand, Thailand, and Vietnam about potential bubbles for business travel.
Such bubbles would open up more opportunities for regional air travel and provide much-needed economic respite for struggling airlines.