Overcautious governments stifling region’s airline recovery

When the region’s major airline leaders, members of the Association of Asia Pacific Airlines (AAPA), hold their annual Assembly of Presidents this month they will be in unknown territory. For the first time the event will be a virtual gathering with discussions dominated by how they can come back from a year of hell. Associate editor and chief correspondent, Tom Ballantyne, reports.

November 1st 2020

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Despite the gloom and doom of the worst crisis aviation has faced in its history, Association of Asia Pacific Airlines (AAPA) director general, Subhas Menon, is far from pessimistic about the future of his airline members. Read More » Airlines must be optimistic, he insisted, when he spoke to Orient Aviation last month.

“Going on its track record this industry is one that is able to pick itself up. And I can tell you I have not seen aviation speaking so much with one voice as we are seeing in this crisis,” he said.

'The European Centre for Disease Prevention and Control, which publishes weekly numbers on the number of cases per 100,000 in each region, puts the Asia-Pacific at less than 20 cases per 100,000 population. These figures compare with Europe, at 60 and above and America, which is closer to 150 and above. So, in the Asia-Pacific I would say containment is relatively successful. But if you look at the United Nations World Trade Organization (UNWTO) [report] on regions where destinations have imposed border closures, the Asia-Pacific is the highest'

Subhas Menon Association of Asia Pacific Airlines director general

“There is no dissent among stakeholders in our ecosystem about the path to recovery. They are all singing from the same hymn sheet. This is really a positive. The solidarity and the commitment of the industry to restoring international mobility will be critical to the future, not only of aviation but for the global economy.”

At the same time, the Singapore Airlines (SIA) veteran, who took the helm of the regional airline body in March just as the COVID-19 crisis began to bite deeply into industry revenue, is far from ignoring the dire straits in which carriers find themselves.

The latest AAPA traffic figures, for September, documented that Asia-Pacific airlines carried 1.1 million international passengers in the month, 3.6% of the 30 million passengers it transported a year earlier. Average international passenger load factor for the reported period was 31.7%. Even international air cargo, regarded as a bright spot in the industry, registered a 29.9% decline year-on-year.

Menon is well equipped to withstand the pressures of the crisis and guide the regional industry forward. A graduate of the National University of Singapore, with a Bachelor of Social Science (Honours) in Sociology, he has worked across a wide spectrum of roles at SIA, including international and government relations, marketing, product development, logistics, country and regional management and a spell as CEO of SIA’s regional subsidiary, SilkAir.

Recovery, he said, will not come easily or soon. As the first half of 2020 progressed, with COVID-19 spreading like wildfire through China, into Asia and then across the world, the industry assessment was it would take six to nine months for the pandemic to be contained and recovery to commence.

“Frankly it has gotten worse. Not from the point of view of the virus, because the second waves and all that had been predicted, but because the response of various governments in the Asia-Pacific was totally unexpected,” he said.

“Countries like Australia and New Zealand, even Singapore and others in Southeast Asia, were taking a very, very risk averse approach to fighting the virus knowing full well tourism and trade were very important parts of the economy.”

That reaction, said Menon, took airlines by surprise. “They [governments] have been digging in. They are prepared to wait until a vaccine is available and distributed before they open international borders. It is as if they are saying ‘let’s fix the problem locally, whether it is possible or not, and then we will attend to the international parts of our economy’,” he said.

“It has been a much unexpected evolution of the situation. We all feel pretty disheartened thinking ahead. Unless governments are persuaded to re-open their borders it is very difficult to see us up and running again.”

Menon’s argument is the Asia-Pacific does not have to be so draconian with its border restrictions and quarantine rules. With few exceptions, most countries in the region are successfully containing the spread of the virus, he said.

“There is a disconnect. Why is the Asia-Pacific taking such a risk averse approach to border closures? It does not have to be so bad if risk assessment is applied and mitigated. By now, we should be seeing these travel bubbles in the region but it is not happening,” he said.

It is an argument that will undoubtedly be stressed at this month’s Assembly, which was to have been hosted by Japan Airlines in Tokyo. Now to be virtual, Menon said it was the only alternative given the restrictions on travel. Even if airline executives from around the region could enter Japan, they could not do it without being quarantined. And when they travel back home, they would have to go into quarantine again.

It is a situation Menon himself has had to accept. A virtual Assembly and meetings are all very well, but he misses face-to-face interaction. As a Singaporean he was forced to leave AAPA headquarters in Kuala Lumpur and return to his home country shortly after taking charge. He later travelled to Australia and went through quarantine again, where he remains today, operating from Sydney.

Returning to Kuala Lumpur will not be happening any time soon, he said, because it would mean going into a government isolation centre for 14 days and prevent him from leaving Malaysia for three months after he completed quarantine.

AAPA staff also face disruption. Initially working from home after the crisis broke, they returned to the office. But in early October, when virus case numbers started to rise again in Malaysia, they returned to their homes to wait for the situation to stabilize.

In the meantime, airlines in the Asia-Pacific, like their peers worldwide, are struggling to survive. Although the International Air Transport Association (IATA) has warned the industry will burn through US$77 billion in cash in the second half of this year - almost $13 billion a month or $300,000 per minute - Menon does not forecast mounting bankruptcies among his members or at other airlines in the region.

REGION’S GOVERNMENTS “WILL DO THE RIGHT THING”

“It is like asking how long is a piece of string? If the spool runs out, what happens? Ultimately, it depends on the wherewithal of governments and their shareholders. So far, they have stood by the airlines, giving them as much support as they can. It all boils down to the means they have. When push comes to shove governments realise how important aviation and international tourism and trade are to their economies and they will do the right thing,” he said.

The solution is not to continually refinance and refund, Menon believed. “The solution is to start reopening borders and let airlines earn their own keep. International isolation and continuance of funding of airlines from government coffers are not solutions for the future of aviation or the economy,” he said.

“At the same time, we are actively advocating Asia-Pacific governments to mutually develop travel bubbles and expand bilateral travel bubbles to a travel bubble in the Asia-Pacific.”

Right now, the key battle AAPA and other industry bodies is fighting is quarantine restrictions, the single major contributor to the dramatic downturn in air travel with the exception of the COVID-19 outbreak itself.

Like the leaders of other aviation organizations, Menon is putting a great deal of effort into lobbying governments on this front. He considers Singapore took a step in the right direction when the country’s minister of transport announced he would pursue travel bubbles within the region.

“If you read his statement carefully, one of the points he made is if you are going to have a travel bubble between countries where the infection rate is equally low then the risk of imported cases is no higher than you would have in your local community,” he said.

“For instance, if you are going to allow travel from Singapore to Australia, where the prevalence is in single digits and is the same in Singapore, travelling between these two places is no higher in risk than if somebody is coming from northern Sydney to the heart of Sydney. The risk of imported cases can be mitigated if you apply such risk assessment.”

“Rapid result tests are already available but they are being validated in terms of their accuracy. If they are validated and their accuracy is reasonable and it is above 90%, that is a pretty reassuring measure so you can implement that,” he said.

COVID-19 TESTS MUST BE AFFORDABLE

“Don’t forget that if testing is not accessible to the general population it is not going to help air travel. It must be cheap, affordable. In Singapore, if you want to do a test, you have to pay $200 a pop. If you have a family of four that’s going to be more than one air ticket.

“Of course, it can be passed on to the travellers if it is inexpensive but otherwise governments will have to pay for it.”

If and when a vaccine becomes available, Menon said there will be major issues to resolve in delivering it worldwide. “There are not enough flights for that. I was listening to an interview with an executive from the largest producer of vaccine (an institute in India) who said they can produce a lot of vaccine, but pharmaceutical companies must gear up to reproduce these vaccines,” he said.

“He said at the moment he did not think they had the capacity to do so. That is one part of the equation. Can you produce enough vaccines for the whole world? And two, do we have enough flights to carry the vaccine to all those countries? It is another reason why cross-border travel should be slowly re-opened.”

Menon is cautious about predicting the timing of a recovery from the pandemic. “IATA is saying we can’t return to 2019 levels until 2024. The longer it takes for governments to reopen borders, and it depends on region to region, the timetable will slip further. This assessment was made on the basis there will be some restart by the end of this year. Already we are in October and we don’t see many signs Asia-Pacific governments are reopening borders. So that could slip,” he said.

If more travel bubbles are introduced and testing becomes more accessible, Menon said “realistically we will see a restart of flights towards the end of the year. December is generally a holiday season when families want to get together so that should see VFR (Visiting Friends and Relatives) traffic, and then residents stuck abroad from COVID-19 starting to go home for the holiday season”.

“Maybe 10% or 20% of what it used to be and then we go from there. If the situation begins to stabilize, governments are happy with the containment of the virus and measures are in place, maybe they will expand the bubble and perhaps we can start to look at travel to other regions where containment also is working quite well,” he said.

GREATER DEPENDENCE ON AIR CARGO

How does he see the shape of the industry when recovery commences? “Firstly, there will be a greater dependence on cargo. Cargo has been a sort of silver lining. I don’t want to emphasize that too much because when you reduce passenger flights you also reduce cargo capacity,” he said.

“The main restriction on cargo demand is lack of capacity. Generally speaking, cargo will become an important part of shaping the recovery.”

Secondly, Menon predicted a change in airline fleets. “Already, quite a lot of airlines have parked their bigger aircraft and are looking at more fuel efficient and cost-effective fleets for operating international flights. You will see some of that. Then it is a matter of nurturing demand, building confidence,” he said.

Menon does not see 2021 as a year of rapid recovery. “It will just be a restart, getting ourselves back on our feet and slowly moving on. It also depends on how many flights airlines are able to implement. Cargo will help them to raise some money. Hopefully, fuel price will stay low because of lack of demand. I would not say they will make lots of money, but at least they can get on their feet,” he said.

“The industry has gone through many crises and it always comes out of them stronger and more resilient. If we can get going by the end of the year, or at least the beginning of next year, we might see green shoots and these green shoots will develop into recovery.”