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BANGKOK: Before the COVID-19 pandemic, Southeast Asia was one of the fastest growing markets for air travel.
But despite being driven by high demand, a deregulated airline market reduced the profit margins of most Southeast Asian airlines, leaving them particularly vulnerable to the economic fallout of COVID-19.
Southeast Asia’s “sky liberalization” has produced fierce competition between low-cost airlines (LCC) and full-service airlines (FSC) over the last decade.
This rivalry had a revolutionary impact on airfare. But the price war that increased affordability simultaneously slashed margins, with volatile fuel costs pushing the industry’s cost structure even higher.
With the pressure of such a business environment, airlines were already struggling to perform. The emergence of a COVID-19-induced recession has now weakened the industry.
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The tourism and hospitality sectors were the first to be affected by the public health measures recommended by the World Health Organization.
As a link in the tourism value chain, airlines were abruptly affected and several airlines were immediately in the red due to the collapse of the number of domestic and international tourists.
NATIONAL CARRIERS IN PROBLEMS
Thai Airways, Thailand’s national carrier, is in bankruptcy court with reported losses of US $ 564 million in the first half of 2020. Malaysia Airlines is also on the brink of bankruptcy after disclosing a loss of US $ 3.32 billion. .
Thai Airways suffered underperformance for more than a decade prior to the emergence of COVID-19 due to its excessive and complicated organizational structure and political forces that spawned severe mismanagement and corruption.
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Thailand’s Ministry of Finance, its largest shareholder, now plans to reduce its equity stake, perhaps allowing Thai Airways to lose its state-owned company status.
Like Malaysia Airlines, the COVID-19 crisis has forced it to choose between going bankrupt and abandoning its status as a flag carrier, or being acquired by another airline.
FILE PHOTO: A Malaysian Airlines Airbus A350-900 passenger jet is seen flying against the moon, over London, Britain, on February 15, 2019. REUTERS / Toby Melville
Other airlines in Southeast Asia share the same fate, with Vietnam Airlines reporting a loss of $ 284 million, Philippine Airlines posting a loss of $ 183.1 million, and Singapore Airlines posting a loss of roughly $ 538 million in the first half. of this year.
Garuda Indonesia also announced losses of $ 696 million. The crisis is not limited to FSCs: AirAsia Group, the LCC with the largest market share in the region, is also in the red, with losses of up to $ 188 million.
CAN DEEP CUTS STOP BLEEDING?
The poor performance of Southeast Asian airlines will determine how they restructure and downsize after COVID-19.
Airlines are a labor-intensive industry, so layoff policies, pay cuts, unpaid leave measures, and golden handshakes are common, quick-win strategies employed by companies to maintain business. liquidity.
Singapore Airlines recently decided to lay off more than 4,000 workers at its subsidiaries, while Lion Air Group laid off more than 2,000 employees.
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Garuda laid off 180 pilots while Malaysia Airlines offered 13,000 staff members voluntary leave without pay as they struggle to make ends meet.
This downsizing strategy has been similarly adopted by AirAsia, as it plans to cut costs by 30 percent, while NokScoot announced huge layoffs a few months before it ceased operations.
Empty check-in kiosk counters are displayed at Kuala Lumpur International Airport in Sepang on September 7, 2020 (Photo: AFP / Mohd Rasfan).
But these job and cost reduction strategies have an adverse impact on local economies. Losing a job means losing a consumer of goods and services.
TIME FOR A DEEP RESTRUCTURING
This puts pressure on governments to provide financial support to airlines in order to preserve employment.
Governments, central banks, airport authorities, or even aviation-related organizations could provide financial liquidity to airlines in crisis.
This assistance can take the form of an interest reduction scheme, airport fee waiver measures, or soft loan schemes, all of which must be extended without delay by governments.
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But airlines must implement their own strategic responses rather than external support to sustain business management through COVID-19.
Airlines may need to readjust their business models to generate other forms of revenue as the outbreak affects domestic cargo flights.
For example, Scoot has adapted by modifying regular passenger cabins so that they can carry additional cargo, while Cebu Pacific has chartered planes that serve and supply food, water, medical equipment and assistance in the Philippines.
A total of 13 tons of cargo were transported both in the hold and in the cabin, mainly goods for daily use. (Photo: Scoot)
The COVID-19 pandemic has had a catastrophic impact on airlines in Southeast Asia. But there is light at the end of the tunnel.
The airline industry has weathered many storms since 1950, including the 1997 Asian financial crisis, the 9/11 terrorist attacks, the SARS pandemic, and the global financial crisis.
There will be some airlines that will endure this disaster across the industry.
Lessons learned from those who establish best practices will inform future business operations and strategies.
Thanavutd Chutiphongdech is Professor at the International College for Sustainability Studies at Srinakharinwirot University, Bangkok. This comment first appeared on the East Asia Forum. Read it here.
