Deadlier virus variant kills airlines’ hope for recovery

The industry requires at least 3 to 4 years to regain the 2019 air travel levels

by SHAFIQQUL ALIFF / Pic by TMR FILE PIX

THE surge of a deadlier Covid-19 variant and poor pandemic management have dashed local airlines’ hope of a start of recovery, especially on the domestic front while international borders remain closed.

Former aviation regulatory body executive chairman Dr Nungsari Ahmad Radhi said the industry requires at least three to four years to regain the 2019 air travel levels.

He said the outlook for Malaysia Airlines Bhd (MAB), AirAsia Group Bhd and Malindo Airways Sdn Bhd is uncertain while the air travel demand structure might change due to the pandemic.

“All three groups have recorded massive losses and the outlook for all three is uncertain. The recovery of the aviation industry will depend on both global and local conditions. Our airlines and airports have depended more on domestic passengers even before the pandemic,” Nungsari told The Malaysian Reserve (TMR).

He said the extended lockdowns had derailed Malaysian airlines’ recovery while they are bleeding cash daily.

At present, he said cash injections from shareholders throw a lifeline to these struggling airlines.

Still, it would take time for airlines to get to Ebitda positive.

Khazanah Nasional Bhd — the sole shareholder of MAB’s parent company, Malaysia Aviation Group — is committed to pumping in RM3.6 billion in capital to fund the business under a five-year restructuring period.

Nungsari said loss-making MAB would need to consider the changes in the aviation landscape such as players, prices and routes to keep its turnaround plan relevant.

The International Air Transport Association (IATA) estimated that airlines’ losses crossed US$126 billion (RM529 billion) last year.

However, there are improvements this year with some international markets opened.

International passenger demand in May was 85.1% below May 2019, a small step-up from the 87.2% decline recorded in April 2021 versus two years ago.

All regions with the exception of Asia-Pacific contributed to this modest improvement, according to IATA.

Asia-Pacific airlines saw May international traffic fall 94.3% compared to May 2019, fractionally worse than the 94.2% drop registered in April 2021 versus April 2019.

The region experienced the steepest traffic declines for a 10th consecutive month, with capacity down 86.4% and the load factor sinking 45.5 percentage points to 33.2%.

Hong Leong Investment Bank Bhd (HLIB) analyst Daniel Wong said the aviation sector is expected to remain suppressed until year-end, before a gradual recovery in 2022 led by the domestic segment.

“Aviation sector will need to wait until the situation recovers for allowable travel without condition or limit.

“It depends on the ability to control the pandemic and new norms in living with Covid,” Wong told TMR.

He said air travel demand would rebound strongly if the pandemic becomes less deadly and infectious.

Still, he said the recovery is subject to risk control measures placed by the government and regulator in allowing “free-for-all travel”.

In a recent research report, Wong noted that interstate travel, including air travel, will only be considered when the nation enters into Phase 4 of the National Recovery Plan, targeted by November to December 2021.

Based on current developments, he wrote domestic travel within Asean would remain suppressed until end-2021 and only gradually recover by mid-2022 with international borders opening up at the same time and to only potentially enjoy meaningful recovery towards end-2022 or mid-2023.

HLIB Research has maintained an ‘Underweight’ rating on the aviation sector.