ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintTitle ChevronIcon Twitter
Transportation

Asian airlines dragged deeper into virus's maelstrom

Pandemic-triggered shutdowns wipe out carriers' cash flows

Australia-based Qantas Airways announced Tuesday that it will cut its total group international capacity by around 90% until at least the end of May.   © Reuters

TOKYO -- Airlines in Asia are being sucked deeper into the coronavirus crisis after its escalation into a global pandemic sparked a wave of travel bans in Europe and North America.

Australia-based Qantas Airways announced Tuesday that it will cut its total group international capacity by around 90% until at least the end of May -- the latest drastic indication of how far world travel is set to be curtailed by efforts to curb the spread of the virus. About 150 aircraft will be grounded out of roughly 300 across the group.

In another sign of airlines preparing to hunker down, Hong Kong's Cathay Pacific struck a deal with aircraft lessor BOC Aviation to sell and lease back six Boeing 777-300ER planes in a deal worth $703.8 million to help the carrier's balance sheet. Cathay Pacific said last week that it had access to HK$20 billion of unrestricted liquidity but was seeking to increase the amount as it struggles through a moment of significant revenue cuts.

Aviation faced a crisis of "unprecedented magnitude," said Brendan Sobie, founder of aviation analysis company Sobie Aviation. "The situation is obviously exacerbated in markets where airlines were not in good financial position entering the crisis," Sobie said, "but even airlines that were relatively in good financial position will have issues in the coming weeks."

Across the region carriers have slashed capacity while asking or demanding that staff take unpaid leave. Many employees have been laid off.

Malaysia Airlines' 13,000 staff were warned in an email from chief financial officer Boo Hui Yeeeven that the group stood on the verge of bankruptcy. The airline cut up to 2,000 flights up to April, asking its employees to participate in a voluntary unpaid leave program for up to three months for five days a month. Top management has taken a 10% pay cut.

The coronavirus outbreak could lead to sharp declines in tourism and business travel, the Asian Development Bank said.   © Reuters

Malaysia's national carrier has been struggling since 2014 when one aircraft disappeared in flight and another was downed over Ukraine. Despite a $1.5 billion injection of government funds that year, a fierce competition with one of the most aggressive budget airlines, AirAsia, hindered the state-owned carrier's revival. It recorded a net loss of 791.71 million ringgit ($182 million at current rates) for 2018.

Many industry analysts are asking whether airlines are able to survive the sudden interruption to their cash flows. Asian airlines have faced fierce competition for many years but were able to withstand it thanks to soaring flight demand and a tourism boom. Now the coronavirus shutdown has exposed the weakness left by many carriers' rapid expansion.

The CAPA Centre for Aviation released a report on Monday warning that most of the world's airlines face bankruptcy within two months. "Many airlines have probably already been driven into technical bankruptcy, or are at least substantially in breach of debt covenants," the report said, adding that "cash reserves are running down quickly as fleets are grounded and what flights there are operate much less than half full."

As the industry confronts the coronavirus threat, Japan's All Nippon Airways on Monday launched a new direct route connecting Tokyo's Narita Airport to Vladivostok in Russia's Far East. But only 39 passengers boarded the maiden flight, a drop from the original 70 bookings and far below the 146-seat capacity of an Airbus A320.

ANA is operating two flights per week in both directions for the next two weeks, and had planned to raise that to three flights per week afterward. But on Tuesday morning, Russia decided to close its borders to noncitizens and nonresidents.

Passengers wear protective suits amid the outbreak of coronavirus at Hong Kong International Airport on March 17.   © Reuters

In the afternoon the airline announced it would ax or reduce 80% of its planned international routes from March 29 to April 24 -- though it is holding to the Vladivostok service as scheduled for the moment. ANA had planned to increase the number of aircraft to around 280 by March 2023, up 20 from March 2018 as it sought to take advantage of an increase in landing slots at Tokyo's Haneda Airport beginning March 29.

Earlier this month, the International Air Transport Association increased its forecast for 2020 losses for the global aviation passenger business as a result of the coronavirus to between $63 billion and $113 billion.

The question for many Asian airlines now is how much support they might get from their home governments to weather the storm. Rivals in other regions have made requests for state backing.

But Hajime Tozaki, a professor at Japan's J.F. Oberlin University and an aviation industry expert, said it was unclear if government have "a reserve of energy" to respond.

"Airlines are just one of any other industries affected by the new coronavirus," said Tozaki. As seen by Malaysia Airlines's capital injection, national flag carriers used to be fully backed by their governments. But "the government today needs to prioritize which airlines to save, taking into account their performance," he said.

For example, Thai transport minister has said Thai Airways International must elaborate in more detail how it plans to improve its cash flow if it wants government support. Grounding roughly 10% of its fleet, the airline has allowed employees to take unpaid leave until June 30.

"This chaos will probably be an opportunity to weed out nonprofitable airlines," Tozaki added.

Additional reporting by Michelle Chan in Hong Kong, Prem Kumar in Kuala Lumpur, Francesca Regalado in Tokyo and Masayuki Yuda in Bangkok.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends October 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more