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Southeast Asia carriers struggle as global travel recovers unevenly

Vaccination drives in main markets sway earnings amid pandemic's grip

AirAsia planes at Kuala Lumpur International Airport: AirAsia Group CEO Tony Fernandes sees operations taking about two years to return to normal.

TOKYO -- The earnings of international airline operators reflect the uneven recovery from the pandemic as they struggle with debt taken on to weather last year's plunge in passenger traffic.

While carriers based in the U.S., where vaccinations have progressed, bottom out, Southeast Asian airlines continue to face headwinds.

AirAsia Group's operations will take about two years to normalize, CEO Tony Fernandes indicated during the Southeast Asian discount carrier's January-March earnings release.

Coronavirus infections remain high in AirAsia's service area, including its home base of Malaysia, where a nationwide lockdown started on June 1. The company last month reported a net loss of 767 million ringgit ($186.7 million), bringing its capital ratio below zero and falling into negative net worth.

Singapore Airlines reported a record net loss of 4.27 billion Singapore dollars ($3.2 billion) for the year ended March 2021. Thai Airlines International went into a reorganization last year, with liabilities exceeding assets by 129 billion baht ($4.1 billion) at year-end.

Airlines shoulder high-fixed costs, including labor and plane leases. When the pandemic halted or greatly curtailed business, they borrowed heavily to secure an operating cushion. Interest-bearing debt at 20 major airlines reached $285 billion as of the March-end, growing 40% from a year earlier.

Cash reserves at the 20 carriers hovered between $50 billion and $60 billion through the end of March 2020, but climbed to $112.7 billion as of this past March. American Airlines and ANA Holdings quadrupled their reserves in a year. The 20 carriers posted losses as they borrowed to pad reserves, reducing their collective capital ratio from 18% to 10%.

Cash reserves at European carriers Lufthansa and Air France-KLM held steady, but their interest-bearing debt rose 50%. Eroding finances would compromise their ability to withstand a protracted COVID-19 slowdown and sap their ability to invest once the outbreak subsides.

ANA Holdings and Japan Airlines have raised money through the equity market, elevating their capital ratios to the 30%-40% level. Singapore raised funds through its existing shareholders, helping to improve its capital ratio to the 40% range. American Airlines and Air France-KLM were in negative net worth as of March 31.

The cash drain in the airline industry is likely to continue. The International Air Transport Association projects that global carriers will burn through $81 billion in cash this year, compared with $149 billion in 2020. The industry's quarterly cash flow is forecast to turn positive in 2022.

Each country's vaccination campaigns are likely to sway earnings going forward.

The three major U.S. carriers, including American Airlines, reported combined net losses of $3.78 billion, a 60% contraction from the peak. With increased vaccinations helping domestic tourism demand to recover, daily cash outflow has shrunk by half. Delta Air Lines expects to return to the black in the July-September quarter.

Carriers operating in markets with lagging recoveries face the challenge of shoring up capital. Governments around the world have provided the airline sector more than $225 billion in pandemic-related assistance as of March, according to the IATA.

Addressing the repercussions of the pandemic last May, then-IATA Director General Alexandre de Juniac said that governments should "focus on ways that will not further increase the debt burden" of the industry.

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