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COVID-19 cuts deep swathe through region’s airline networks

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February 14th 2020

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The impact from the COVID-19 outbreak on Asia-Pacific airlines is likely to be worse than the financial hit they suffered when SARS struck in 2003, analysts say. Read More »

Airlines around the world have cut scores of routes to and from mainland China in response to the virus outbreak in Wuhan.

One of the most exposed airline groups to the China market, Hong Kong-based Cathay Pacific Airways, said last week it would slash the number of flights to mainland China by about 90 per cent until the end of March.

When service reductions to the rest of the network were included – Cathay Pacific also announced frequency reductions on a number of Australian, European and Asian routes – the changes represented a 30 per cent drop in capacity. Staff is being asked to take unpaid leave of three weeks as the capacity crisis plays out.

The Hong Kong-based carrier rolled out more operational changes this week, announcing on its website that three of its five lounges at its Hong Kong International airport hub - The Bridge, The Deck and The Pier first class lounge – would be closed from February 17, 2020 "until further notice".

Writing for Channel News Asia, aviation analyst and consultant, Brendan Sobie, said COVID-19 could not have come at a worse time for airlines in the region already battling intense competition, overcapacity and the impact of eight months of political demonstrations in Hong Kong.

As a result, the outlook for modest profits in calendar 2020 has turned bleak as traffic to and from mainland China sharply declined.

"In just a couple of weeks, the outlook has become downright dismal, with significant losses now likely for at least the first half of the year," the analyst said.

Figures from the International Air Transport Association (IATA) published in 2006 showed Asia- Pacific airlines lost about US$6 billion in revenue from the SARS outbreak in 2003, which killed 775 people around the world. The majority of those who died were in China (349 deaths) and Hong Kong (299 deaths).

The slump in demand due to SARS was estimated at 36 billion revenue passenger kilometres (RPK)  https://www.iata.org/en/iata-repository/publications/economic-reports/impact-of-avian-flu/ .

Morningstar Asia analyst, Ivan Su, said on Bloomberg television this week “the absolute amount of cost this time around will probably be higher than the amount booked during SARS”. "The reason is the Chinese aviation industry has gotten a lot bigger over the past 17 years. With a bigger pie, a similar level of flight cancellations will result in a higher revenue loss for a lot of these carriers."

Singapore Airlines is scheduled to release its third quarter financial results later today while airlines in the region due to publish their latest financial statements in coming weeks include AirAsiaX and Qantas Airways on February 20 and Cathay Pacific on March 11.

Figures from the World Health Organisation (WHO) have recorded 47,000 confirmed cases of people with COVID-19 in 25 countries. There have been 1,368 deaths. 

The spread of COVID-19 has led to a number of major Asia-Pacific events being cancelled or postponed, including Routes Asia in Chiang Mai, the Shanghai Formula One Grand Prix and the Hong Kong Rugby Sevens tournament.

This week’s Singapore Airshow went ahead as scheduled, but attendance, both of visitors and exhibitors, was well down on previous years. The show’s organiser, Experia, said 70 exhibitors had cancelled their commitments following the outbreak of COVID-19. The airshow's aviation leadership summit also was cancelled.

Association of Asia Pacific Airlines (AAPA) director general, Andrew Herdman, said carriers in the region were well-prepared to handle health crises, including those involving communicable diseases, and were taking "every possible measure to minimise the risk of the novel coronavirus being spread more widely across frontiers".

“Understandably, growing public concern about the outbreak has had a very significant impact on demand for air travel across the region, forcing airlines to cut back or suspend services on affected routes," Herdman said on the eve of the Singapore Airshow.

"The risk of crews being subjected to arbitrary quarantine measures has resulted in further operational disruption, regardless of any proper risk assessment."

Herdman, who announced in November 2019 he would step down as AAPA boss on March 1, 2020, said travel restrictions imposed by a number of national governments had caused "significant and widespread disruption to travel and trade activities across the world".

“Regrettably, some of these measures, whilst well-intentioned, seem to lack any proper public health justification," Herdman said.

"Arbitrary restrictions and blanket travel bans are inconsistent with the international health regulations, and result in unnecessary inconvenience and added uncertainty amongst members of the public.”

On a positive note, Sobie said history showed there were reasons to be optimistic about the long-term prospects for airlines in the region.

"The industry will rebound once this crisis is over just like it has in the past. External events that no one can control are part of the airline industry’s DNA, resulting in major short-term setbacks," he said. "Time and time again the industry emerges from the ashes stronger than ever."

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