Singapore Air Show

Asia Pacific Airlines Continue to Bridle at Border Restrictions

 - February 16, 2022, 11:03 AM
A Philippine Airlines Airbus A350-900 takes off on its delivery flight in June 2018.

The Association of Asia Pacific Airlines (AAPA) has said in its calendar year 2021 traffic results that international air travel remained at severely depressed levels, due to “the decimation in international air passenger demand” for the region’s airlines, as tight border restrictions implemented in response to the prolonged Covid-19 pandemic dashed hopes of recovery in air travel markets.

“Overall, the 16.7 million international passengers carried in 2021 represented just 4.4 percent of the volumes recorded in 2019, whilst offered seat capacity averaged 13.8 percent of the levels registered in 2019,” it said. “For the full year, the international passenger load factor was a paltry 32 percent, underscoring the ongoing challenging conditions faced by the region’s airlines in the passenger sector.”

However, a 2022 Airline Economics-KPMG report said no Asia Pacific-based airline had ceased operations in 2021, although airlines that entered bankruptcy protection last year included Philippine Airlines and China's HNA, the parent of Hainan Airlines. Garuda Indonesia and AirAsia X of Malaysia had opted for restructuring.

Airline exits in the past 18 months have included NokScoot, the widebody-only Thailand-based joint venture between Nok Air and Singapore Airlines, Air Asia Japan, and Cathay Dragon.

Given the response of governments in the region to the pandemic in curbing air passenger traffic, Ascend by Cirium global head of consultancy Rob Morris told AIN he could not rule out further Asia-Pacific airline liquidations, especially among low-cost carriers, in the next 12 to 24 months.

“Although the underlying demand dynamic in Asia-Pacific remains strong, continued government restrictions through 2022 are likely to continue to lead to a slower recovery in the region than we have seen in North and South America and Europe,” he said. “In particular, the continued restriction on international travel to and from China, a market upon which much of the remainder of the region relies, could continue to cause traffic and revenue challenges for airlines in the region.”

By contrast, most domestic markets showed strengthening recoveries, raising the potential for some further airline restructuring or resizing in the region and possible market exits through liquidation.

“However, given the severity of the pandemic in the region the number of airline failures to date has been remarkably low and we expect this to continue through the next 12 to 24 months as airlines instead restructure, sometimes through a bankruptcy process, to emerge as more efficient and leaner businesses more appropriately sized to the current market demand dynamic but with potential to grow once more as demand growth resumes post-pandemic,” Morris said.

Siva Subramaniam, partner and specialist in aviation financing and leasing at Singapore-based law firm Herbert Smith Freehills, told AIN many airlines in the Asia-Pacific region continued to struggle.

“In December, Philippine Airlines exited something called a pre-packaged Chapter 11,” he said. “They have now started to pay under the restructured deals they have struck with their creditors. Garuda Indonesia was initially looking at Chapter 11; now, they’re looking at alternate ideas on how they can restructure: they’re in a local [suspension of debt payment obligation (PKPU)] process at the moment.”

Lion Air faced insolvency proceedings in France, he continued. “All the big airlines in Thailand had government money,” he said. “Thai Airways is in a local bankruptcy proceeding. Unless you have government money like Singapore Airlines or Cathay, you’re not going to survive this kind of shock without having some sort of deferral or restructuring. You’re just bleeding too much money.”

While Australia and New Zealand fared relatively well during Covid, their airlines lost a lot of money because of a lack of international travel. “Domestic travel in Australia pre-Omicron was doing well; now, obviously, it’s been shattered because the cases have gone up and there have been border closures between the states in Australia, which then impacted domestic travel. A number of those airlines were confident of resuming international travel,” he said. “Those projections had to be pulled back.”

Subramaniam commended the efforts of entrepreneur Tony Fernandez establishing the Malaysia-based Air Asia franchise, which operates 255 aircraft across its home fleet and those of current subsidiaries.

“You’ve seen how low-cost carriers have worked in Europe, and how WizzAir, Ryanair, and EasyJet have done well there," he said. "The complication for Fernandez in Asia is the regulatory environment. Setting up low-cost carriers in all these jurisdictions requires you to own, or do a joint venture with, a local partner, create another airline, get another AOC; all of that increases cost, even if it’s under the same brand, it is more difficult to do than for the likes of Ryanair and EasyJet.”

India, meanwhile, has seen a number of airline casualties. “Kingfisher was the biggest; other airlines are in a lot of trouble,” said Subramaniam. “Go Air is trying to do an initial public offering. It is a difficult market. There’s a lack of infrastructure in terms of airport capacity. There isn’t sufficient GDP to have a lot of people flying around.”