KUALA LUMPUR/JAKARTA -- Sharp falls in airline passenger numbers triggered by the rapid spread of the coronavirus will likely test the long-term viability of several Asian carriers already battling a long list of challenges.
Most vulnerable are those airlines which rely heavily on the Chinese market, such as Hong Kong's Cathay Pacific Airways, Malaysia's AirAsia Group, Singapore's Scoot, Philippine Airlines, and Garuda Indonesia.
"There is little respite on the horizon," Peter Harbison, chairman emeritus of leading aviation research company CAPA (Centre for Aviation) told the Nikkei Asian Review, adding that many smaller travel and hospitality businesses would also be unable to absorb an extended lack of cash flow.
"In what were already fragile economic conditions, this will make consumers reluctant to spend on discretionary items, so what looked earlier as if there would be a rapid post-SARS-type bounceback may not now occur," said Harbison.
Analysis by CAPA already shows that the impact of the virus on airlines "has been sudden and ugly," with traditionally busy periods such as the upcoming Easter holidays in April also likely to be severely disrupted.
According to CAPA, China's international seat numbers are already down by nearly 80% compared to last year, with domestic seat numbers down nearly 60%. Singapore's seat capacity is also well down, falling from 1.75 million last February to around 1.35 million.
International seat numbers in Japan are down over 20%, and by around 10% in Malaysia. South Korea could be one the worst-affected countries, with international seats already down by 20% but with the worst yet to come.
"As the virus spreads more widely globally, there will now probably be a boomerang effect, where even if China is cleared, countries at the other end of Asian routes will be affected again, and this would have the effect slowing the recovery," said CAPA's Harbison. "An economic downturn would further accentuate that."
Hong Kong's flagship carrier Cathay Pacific is among the hardest-hit airlines in Asia due to its high exposure to the Chinese market, with about one-fifth of all Cathay flights serving the mainland.
Cathay has scrapped over three-quarters of its weekly flights in March, more than the 40% cut in capacity the airline had previously planned.
Ivan Su, an analyst at Morningstar, expects Cathay to report a loss this year, with a 9% hit to earnings as a result of the virus, and a greater impact if the virus keeps spreading to other key markets.
Even after the virus outbreak is contained, Su said, the prolonged social unrest in Hong Kong would continue to cloud Cathay's outlook. "A slight decline in travel demand can already greatly affect airlines' profitability," he said.
Another carrier facing difficulties is AirAsia, Asia's largest budget carrier, which has been forced to suspend flights to key markets across the region including China, Japan and South Korea.
Even before the onset of the virus AirAsia registered a second consecutive quarterly loss of 384.5 million ringgit ($92 million) for the quarter ended Dec. 31, 2019, following a 395 million ringgit loss for the same period in 2018.
AirAsia X, the group's long-haul unit, registered a widened net loss of 95.8 million ringgit compared with 88.1 million ringgit loss in the fourth quarter of 2018. It said ticket sales to China, Japan, South Korea and Australia were heavily affected by the coronavirus outbreak.
According to MIDF Research's Adam Mohamed Rahim, Chinese destinations make up between 25% - 45% of AirAsia X's total capacity, while South Korea and Japan take up a combined 40% of the airline's capacity.
"In order to deal with the COVID-19 outbreak, AirAsia X has planned the cancellation of nonprofitable routes such as Tianjin, Lanzhou and Jaipur," Rahim said in a research paper. "Management also guided that more than 600 flights will be cancelled in March 2020, covering eight destinations."
With over 3 million Chinese tourists visiting Malaysia last year, and Malaysia setting an overall target of 30 million tourists this year, AirAsia's full-service rival Malaysia Airlines has also seen demand fall sharply.
Loss-making Philippine Airlines, which laid off 300 ground staff last Friday, is also preparing for a major financial hit due to travel restrictions forced by the virus.
The Philippines' flagship carrier has been in the red since 2017, with losses widening to $208 million last year, which the company warned would be "aggravated by the ongoing travel restrictions and flight suspensions to areas affected" by the coronavirus outbreak.
Philippine Airlines has canceled 69 weekly flights to China, including Hong Kong and Macao, and 17 weekly flights to South Korea, company spokesperson Cielo Villaluna told Nikkei.
To make up for the lost revenues, the company will test several new flight routes to Perth in Australia and Kota Kinabalu and Manado in Indonesia, Villaluna said.
Indonesian airlines are also bracing for the full impact of the coronavirus outbreak, which has forced the suspension of flights to the country's top two foreign destinations, China and Saudi Arabia.
Indonesia's transport ministry has banned all flights serving China, affecting five local airlines -- national flag carrier Garuda Indonesia and its low-cost subsidiary, Citilink, Indonesia's largest private carrier Lion Air and its medium service unit, Batik Air, and Sriwijaya Air.
Saudi Arabia delivered another blow by barring hajj pilgrims from 16 countries -- including Indonesia, the world's most populous Muslim nation -- from entering the country.
"There are around 35 flights per day from Bali to China, or around 6,800 passengers per day. Based on our calculation, it may cost us 40 billion rupiah ($2.8 million) a month," Faik Fahmi, president director of state-owned Angkasa Pura I, which operates 15 Indonesian airports including Bali.
Garuda vice president Mitra Piranti told Nikkei that the airline has reduced its flights between Indonesia and Singapore from nine a day to three to five, with similar cuts to flights to Seoul and Hong Kong.
"As well as to anticipate the spread of the coronavirus, the reduced frequencies are also as an adjustment to the market condition -- the supply and demand," Piranti said.
Additional reporting by Nikki Sun and Michelle Chan in Hong Kong.