Many Asian airlines are on the verge of bankruptcy because of Covid-19

In response to the Nikkei Asian Review, finance professor David Yu of New York University in Shanghai said that the travel restriction measures to curb the Covid-19 epidemic were pushing a series of Asian airlines into crisis, even to the brink of bankruptcy.

According to the International Air Transport Association (IATA), Asian carriers could lose up to the US $ 27.8 billion in revenue, of which Chinese carriers alone – where disease outbreaks occur – lose 12.8 billion USD.

Expert David Yu said Asian airlines – which depend on regional routes – would have to drastically cut costs and diversify revenues to survive the crisis.

The Chinese market is paralyzed

In 2019, China’s aviation industry will serve 671 million passengers on domestic and international routes. However, the Civil Aviation Administration of China said its demand for flight in the country plummeted by 70% since the new strain of coronavirus outbreaks from Wuhan, Hubei province.

Prior to the Covid-19 epidemic, China was the world’s third-largest aviation market. But for the time being, the market has shrunk and dropped to 16th place, according to Professor David Yu’s calculations. Earlier, Bloomberg determined that the Chinese market had dropped to 23rd place.

In addition, China’s aviation capacity also fell sharply when more than 60% of the aircraft of the airline fell into the “cover-up”. Many domestic and international routes are sporadic, with few flights per day or even fewer.

Airlines operating at major transport hubs in Asia such as Changi ( Singapore), Hong Kong International Airport (China), Incheon (South Korea) also flutter when passengers avoid going to epidemic areas. and many major events were canceled.

Similarly, about 70 international airlines have canceled all flights to and from China. The fact that more than 60 countries issued medical warnings, restricting travel, restricting entry and isolating passengers from China made flight demand worse.

According to IATA, by the time of the SARS peak in April 2003, the demand for aviation in Asia had decreased by 45%, resulting in airline losses of around US $ 10 billion.

According to Professor David Yu, the current crisis will seriously affect the financial health of a series of Asian airlines, especially those that cannot quickly cut down fixed costs such as labor and equipment. fly, office.

Many firms will go bankrupt

Fuel cost is the largest cost of the airline. At the present time, fuel costs have plummeted, but Professor David Yu said that would not help the airline as much as the fleet continued to “cover-up”.

Asian airlines have missed the peak travel season during the Chinese New Year and will have to wait until the peak summer months. However, with the complicated translation of Covid-19 in China and spread in Korea, Japan, Italy, Iran … the situation of the summer market is still a big question mark.

Professor David Yu warned that airlines with low-profit margins and financial imbalances would be pushed to bankruptcy. Even larger airlines with more financial resources will suffer.

In addition, many financial institutions lend to airlines and aircraft leasing businesses are also affected significantly. Loan extension, interest rate reduction and other support measures are what companies need from many Asian governments now.

According to Professor David Yu, for the time being, airlines need to aggressively cut costs and find other sources of revenue, such as shifting focus to healthier international markets or leasing aircraft.

Airlines can work with workers to find innovative solutions to cut costs. Some companies, such as Cathay Pacific Airways and China Southern Airlines, have given employees leave or request voluntary leave.

Professor David Yu also advises airlines to take advantage of this empty time to improve organizational capacity as well as focus on issues that are often overlooked, while motivating staff. before the situation recovers.

He argued that failing to do so could mean bankruptcy unless government intervention or the airline was injected with bailouts from investors.

According to IATA, after SARS in 2003, it took 9 months for international aviation demand to recover before the pre-epidemic level. With the Covid-19 epidemic, even if governments plan to respond faster, it is likely that recovery time will be slower due to the level of deep integration of economies and global supply chains.

Source: ft.com

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