By SHAHEERA AZNAM SHAH / Pic By BLOOMBERG
AIRPORTS in the Asia-Pacific (APAC) region are facing critical risks amid the Covid-19 outbreak compared to neighbouring areas due to the region’s growing integration with China.
Since the virus was detected in January, APAC countries have been cutting back on air travel due to the restriction by several countries, which is expected to impact airport revenues, Moody’s Investors Service said in a report yesterday.
“APAC-based airports face more acute risks than their global peers because of their greater concentration of Chinese travellers and their proximity to the main regions affected by the virus.
“The emergence of Covid-19 in the APAC region is curtailing aviation traffic and thus 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,” it said.
While Malaysian airports have relatively high exposure to China, they do not have major investments planned in the first half of 2020 (1H20), which will allow for some buffer in managing a temporary downturn in traffic, the rating agency said.
It added that Melbourne Airport’s credit profile is more exposed to the disruptions resulting from the Covid-19 outbreak, reflecting the airport’s relatively high exposure to China coupled with its large investment pipeline.
“These risks are balanced by the airport’s track record of maintaining its credit profile, as well as its strong liquidity position,” the firm said.
Despite the growing integration of China into the APAC region over the past two decades, travels between China and APAC countries still account for a small proportion of the region’s airport passengers.
According to Moody’s, there is a greater financial impact on APAC airports from a suspension in China-related travel than that suggested by raw passenger numbers, as airports typically generate substantially higher revenues from international passengers than domestic passengers.
“It is too soon to observe the impacts of Covid-19 on domestic and non-mainland China-related travel.
“Undoubtedly, the impacts will depend on the duration and geographic spread of virus-related disruptions, as well as any broader impacts on travel demand inside and outside the APAC region,” it said.
Past experiences from the manifestation of event risks such as the SARS outbreak in 2003, suggest that travel between Asian destinations could be significantly affected in the next two to three quarters, the agency added.
However, the depth of the virus impact will ultimately depend on the spread and length of disruption of global travels, as well as the effect — if any — on long-term demand for travel.
“However, most rated airports generate solid free cashflows and are able to defer their investment programmes. This factor provides a buffer to manage a short-term decline in aviation demand,” the rating firm stated.
Covid-19 has particularly affected tourism-related and hospitality sectors, as fears of the virus for which there is yet no cure, continue to dampen travel sentiment.
The manufacturing industry has also suffered due to the closure of factories in China, which has disrupted the global supply chain and thrown a spoke into the wheel that is the world’s manufacturing powerhouse.