Asia’s air transport industry collapses

The money-losing Nok Air, owned by the Jurangkool family, who have been looking for a new investor as Thai Airways International has been diluting its investment, has cut back on international flights. Although, recently airline management said Nok Air is still flying domestic routes, its jet fleet appears on Flightradar24to have ceased operations. Thai Lion Air has suspended all domestic operations.

Singapore Airlines is down to operating at 4 percent capacity and being financially supported by Singapore’s sovereign fund, Tamasek Holdings Ltd., on behalf of the government.

Vietjet is still maintaining domestic services and some international flights. The company is offering free “Sky Covid Care”insurance package  to USD 8,500 if any passenger becomes infected as the result of a flight on Vietjet.

Indonesian domestic routes are still being serviced by Garuda, Batik Air, Lion Air, Citilink, My Indo Airlines, Sriwijaya Air, Wings Air, and very limited Air Asia flights. Lion Air, Malindo Air, Batik Air, and Wings Air hold more than 55 percent of the Indonesian domestic air market, and are all underwritten by the Indonesian tycoons Rusdi and Kusnan Kirana.

Garuda’s management is scandal-ridden, with the former CEO, Ari Askhara charged by Indonesian Customs authorities for attempting to smuggle into Indonesia a Harley Davidson motorcycle after already being in jail over bribes paid by Rolls-Royce to supply the fleet. Garuda has long suffered insolvency problems and had been attempting to restructure company debts. This problem will be amplified, if and when the Covid-19 crisis affects Indonesian domestic traffic. Garuda has also been forced to eliminate the financially lucrative first class from most flights, and drastically scaled back international flights even before the Covid-19 crisis, leasing 16 wide-bodied long-range aircraft to Air India.

The Ministry of Civil Aviation in India has ordered a halt to all domestic flights on the sub-continent, except for cargo flights. This is hurting already financially stressed budget airlines like GoAir and Spice Jet. The Indian government is assisting Air India refinance debt to keep it afloat.

Philippine Airlines has cancelled all international and domestic flights for a month in response to the lock-down over Metro Manila ordered by Philippine president Duterte. Cebu Pacific is also totally grounded.  

Cathay Pacific’s flights to and from China were already under strain due to Chinese authority’s distain over some Cathay employees showing support for the pro-democracy movement in Hong Kong. With the advent of the Covid-19, crisis Cathay flights to China have ground to a halt. With the majority of Cathay’s other international flights cancelled, most aircraft are now parked at Hong Kong airport. Seventy-five percent of Cathay’s employees are now on unpaid leave. Cathay Pacific and Hong Kong Air just received a HK$2.6 billion (US$335.3 million) rescue package, but are seeking more.

Airlines in the crisis have been minimizing their fixed costs by seeking reduced airport rental charges and placing staff on unpaid leave. Cash flows are minimized with airlines withholding refunds over flight cancellations. However, the major fixed cost for Asian airlines is the leasing of aircraft fleets, which run up as high as 40-50 percent of total operating costs.

Airline profitability has always been extremely marginal and susceptible to rising costs such as fuel, or downturns in revenue. Airlines with high debt to equity ratios, and often low cash to debt ratios can very quickly become financially insolvent with even small losses in revenue. The almost complete loss of all revenue in this crisis, if it continues just for a few more weeks, pull down a number of the financially weaker airlines. Another couple of months would wipe out the majority.

Three basic scenarios can be applied to the situation today, depending on value judgements by respective governments.

First, the Singapore government views Singapore Airlines as a strategic asset that links the nation with the rest of the world. Singapore Airlines is considered an important trade and logistics tool. As a consequence, the airline must be kept intact in the current form. Singapore will use its sovereign fund, Tamasek Holdings Ltd, which has an equity option.