Friday, 14 February 2020

(The Star) Spectre of prolonged Covid-19 hangs over aviation

PETALING JAYA: More than three dozen airlines globally have cancelled or scaled back air services into China temporarily as passenger and cargo demand drops but a prolonged outbreak of the coronavirus (Covid-19) will impact badly on the revenue of the travel and tourism sector for this year.

At least one local airline has warned employees to be in sync with the airline’s cost-cutting measures as demand drops “to limit the risk of closing down, ’’ while another loss-making airline will be under more pressure from tourists reluctant to travel.

Last year, a report said a dozen airlines folded over a 14-month period last year due to various reasons.

A prolonged outbreak of Covid-19 does not bode well for just airlines, but airports, logistic players and other segments of the travel industry including hotels and retailers in the Asia-Pacific region.“These are very challenging times for the air sector with a sluggish global economy that is further dampened by Covid-19.

“Demand for air travel is just dropping and airplanes are carrying few passengers on some routes, so it would be no surprise in a prolonged period of the outbreak, some some airlines will have to scale down their operations via restructuring or even close shop, ’’ said an industry executive.

The latest to liquidate and suspend operations is Air Italy as it announced on Tuesday and that means thousands of employees will lose their jobs at a time when the global economy is reeling from fears of Covid-19, which has forced people to delay or cancel travel plans.

Moody’s Investors Services in a report issued yesterday said the emergence of Covid-19 in the Asia-Pacific region is curtailing aviation traffic. This is impacting airport revenues, particularly as international travel restrictions are imposed to contain the spread of the virus and airlines announce route suspensions to and from mainland China and Hong Kong.

China is the world’s second-largest aviation market after the US while Hong Kong is the world’s busiest international air cargo hub. Many Asean countries are reliant on foreign visitors but both Thailand and the Philippines are highly reliant on China tourists.

Singapore, the business financial hub in the region, is also bracing for a 25-30% drop in tourist arrivals and spending this year because of Covid-19, a report said.

International Air Transport Association (IATA) earlier said the last outbreak - SARS - in 2003, cost global airlines US$7bil, of which Asia Pacific airlines suffered a US$6bil loss.

This time around the impact is even greater and even though experts suggested the losses to be more than US$7bil for the region, a prolonged outbreak would push the figures higher.

Then it took nine months for international passenger traffic to return to normal after SARS, according to IATA.

IATA said that with all the restrictions put in place, it will certainly be a drag on economic growth and for sure 2020 will be another challenging year for the air cargo business.

Moody’s expects travel between Asian destinations could be significantly affected in the next two to three quarters.

It adds that Asia-Pacific based airports face more acute risks than global peers because of their greater concentration of Chinese travelers and their proximity to the main regions affected by the virus, a credit negative.

“However, we consider that the backdrop of slowing economic conditions in concert with disruption emanating from the Covid-19 as raising the prospect that Asia-Pacific airports may have to employ counter-measures to support their credit profiles, including reducing discretionary operational expenditures, deferring investment, and lowering distributions, ’’ it said.

Although MALAYSIA AIRPORTS HOLDINGS BHD has a relatively high exposure to China, it does not have any major investment planned for in the first half of 2020 and it has some buffers in its leverage metrics to manage a temporary downturn in traffic, Moody’s said.