News
IATA says governments more open to airline consolidation in COVID-19 era
November 27th 2020
International Air Transport Association (IATA) regional vice president Asia-Pacific, Conrad Clifford, said this week the proposed merger of Korean Air (KAL) and Asiana Airlines suggested COVID-19 was reshaping government attitudes about airline consolidations. Read More »
Last week KAL announced its parent company, Hanjin Kal, would acquire Asiana in a 1.8 trillion won (US$1.6 billion) transaction that is being supported by the state-backed Korea Development Bank and described as unavoidable by South Korea's deputy minister for civil aviation, Kim Sang-do.
Coincidentally, Heizo Takenaka, an advisor to Japan’s prime minister, Yoshihide Suga, and a Keio University professor, publicly floated the idea of All Nippon Airways (ANA) and Japan Airlines (JAL) coming together.
Speaking at a virtual media briefing this week, Clifford said he expected governments to take a less restrictive approach to consolidation given changed market conditions.
"The reason I say this is who would have thought a year ago, if you looked at Korean and Asiana, that the Korean government would have remotely agreed to a merger between those two carriers. But that is where we are today," Clifford told reporters.
"It reflects a realistic approach to the fact airlines around the world are in very poor financial condition. In many cases that means consolidation, mergers, makes a lot of sense. This pandemic has changed the attitude of governments towards consolidation, for sure."
This week IATA forecast Asia-Pacific carriers will lose US$31.7 billion in calendar 2020, a loss of $36.40 per passenger. The figure has increased since the association’s June forecast of a US$29 billion net loss for the region’s airlines.
While conditions were expected to improve in 2021, the region's airlines were still expected to be in the red next year with a net loss of US$7.5 billion, or US$6.30 per passenger.
"It is going to be a long slog to get the industry back to profitability," Clifford said.
IATA's economic report said the Asia-Pacific was the first region exposed to COVID-19 – the outbreak is believed to have originated in China’s Wuhan – and the recovery started earlier in the region.
"The Asia-Pacific is expected to benefit from the recovery in large domestic markets such as China and India and also from the strong economic rebound in China," the IATA report said, and added China’s airlines are predicted to reach cash break even by the end of this year.
"In addition, the Asia-Pacific, as a manufacturing hub, benefits from the strength of cargo revenues."
Asked about the lack of air travel bubbles, apart from the now postponed arrangement between Singapore and Hong Kong, Clifford said it reflected official attitudes towards risk. “Public health authorities tend to have a policy to totally eradicate the infection and then open," Clifford said.
"The risk calculation in public health is slightly different than the managed risk we see in aviation for example."
