According to MAHB, domestic passenger traffic increased 78% in the 3Q21 as travel restrictions were relaxed domestically and abroad 

by ANIS HAZIM / Pic by BLOOMBERG

2021 remained a turbulent year for the local airline industry as Covid-19 pandemic hit inbound and outbound travel for much of the year but the easing of travel restrictions and reopening of international borders amidst rapid vaccination is set to help passenger traffic recovery this year. 

That said, industry analysts think the operating environment for the aviation industry remains challenging. 

According to Malaysia Airports Holdings Bhd (MAHB) recent reports, domestic passenger traffic increased 77.8% to 3.2 million passengers in the third quarter ended September 2021 (3Q21) from 2.5 million passengers in the previous quarter as travel restrictions were relaxed domestically and abroad. 

The prime initiator of air travel would be the level of control over Covid-19 cases as the independent aviation analyst Mohsin Aziz pointed out, there are still too many travel restrictions across the world. 

“As it stands currently, it is not palatable for the common people to travel. The rules are perplexing, the polymerase chain reaction (PCR) tests requirements cost way too much money and international flight schedules are thin relative to its history,” Mohsin told The Malaysian Reserve (TMR). 

He stressed the recovery for airlines is much dependent on the government’s decision. 

“Whether the industry makes it or not is at the fingertips of the government rules. They are the gatekeeper whether the industry will survive or die,” he told TMR recently. 

In 2021, the analyst said the airline industry had a fairly reliable domestic sector which was something that they were lacking for much of 2020. 

“Therefore, they made domestic services the core of their operations, preparing the crew and operations for such opportunities,” he noted. 

He also foresees the need for the airline industry to consolidate as there’s too much competition for all to survive. 

The virus also remains a major factor. Recently, thousands of flights globally were cancelled as the Omicron variant hit flight schedules with cancellations as restrictions were reintroduced. 

The Malaysian Aviation Commission (Mavcom) noted that in a report last year, it expects Malaysia’s air passenger traffic to increase between 316%-525% year-on-year (YoY) to 49 million passengers in 2022. 

“This large jump in passenger traffic growth is due to the low base effect in 2021. This marks a 30% to 45% recovery from the 2019 air passenger traffic level,” it said. 

It expects airlines to gradually deploy more seat capacity due to the relaxation of the interstate and international travel restrictions. 

“For this scenario, international passengers would be expected to have a bigger proportion of the total passenger traffic in 2022,” it added. 

The past two years have exerted immense pressure on airlines companies as the loss of revenue hit their ability to service their significant debt and liabilities. 

In March, Malaysia Airlines Bhd (MAS) obtained court approval in the UK to restructure more than RM15 billion in liabilities — one of the first Asian airlines to successfully restructure its debt without cutting its staff. 

The restructuring resulted in a stronger balance sheet for MAS as it eliminated some RM10 billion of debt. 

Its sole shareholder, Khazanah Nasional Bhd injected RM3.6 billion over the course of five year for the restructuring plan.
Low cost carrier AirAsia Group 

Bhd’s long-haul affiliate AirAsia X Bhd (AAX), underwent its own debt restructuring plan after convening several meetings with its creditors. 

In October 2020, AAX proposed to reconstitute RM63.5 billion of its debts into an acknowledgement of indebtedness for a principal amount of up to RM200 million. 

This was done by shaving off 99.9% of its issued share capital and proposed share consolidation of every ten existing shares in AAX into one share. 

In November, AAX received 99% support from its creditors on its plan to restructure RM33.65 billion of debt after it was reduced from the original amount of RM63.5 billion. 

AAX’s restructuring scheme sparked unease among its passengers as the group decided to treat ticket holders as creditors and assured its passengers with travelling privileges in the form of travel credits, which can be used for future purchases of flight tickets. 

AAX received a majority of creditors’ votes for its debt restructuring plan and it is currently looking at a recapitalisation exercise next. 

Upon the completion of the exercise, AAX will be among the few airlines worldwide that will have no gearing and a restructured cost base that is significantly below that of its competitors. 

AirAsia group has also raised fresh cash and credit from lenders and government to get its financial situation to a healthier level ahead of resumption of travel globally.