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Consolidation ahead at Asia-Pacific airlines?
December 1st 2020
Come January 1, airlines worldwide will be breathing sighs of relief, glad to say goodbye to a year of operating miserably. Read More » The tragedy of 9/11, the onset of Severe Acute Respiratory Syndrome (SARS 2003) and the 2008 Global Financial Crisis pale into insignificance when compared with the impact of COVID-19 on global travel and tourism.
Fortunately, Asia-Pacific 2021 commercial aviation is forecast to be better than the shocker of the last 12 months. But more airline financial losses are certain and some airline bankruptcies will be unavoidable.
The International Air Transport Association (IATA) does not believe the industry will return to cash positive status until the last quarter of 2021 – at least. The Asia-Pacific has several top tier airlines well capable of attracting funding and or selling equity in their enterprises, but it also has a number of financially fragile carriers which already were in trouble pre-COVID-19.
So it is not surprising there is speculation about airline consolidation and mergers as pundits take stock of damage done by the pandemic. The surprise swoop by Korean Air parent, Hanjin Kal, for control of rival Asiana Airlines would have been unthinkable a year ago. But Asiana is a financial basket case so it had no defence from a better funded predator.
It is evidence consolidation may be the only one way out of this pandemic-induced crisis for some Asia-Pacific carriers. But cross border airline consolidations remain big political mountains to climb given the major obstacle to the mergers/acquisitions is foreign ownership rules written so airlines in the Asia-Pacific are not controlled by foreign investors.
It has long been recognized, despite the unprecedented growth of air traffic in the region, that there are too many airlines in the world, and that includes the Asia-Pacific.
In this region, excessive capacity has resulted in intense competition and therefore extremely low yields, making profitability for many carriers very difficult to sustain.
While the industry suffers to a full recovery, airlines will be operating smaller fleets and reduced networks. Ahead, in the short-term, is a more compact industry. Given the circumstances, is it the time for the region’s governments to review their ownership rules and agree to carriers linking ownership hands across borders to create a more viable Asia-Pacific aviation industry?
TOM BALLANTYNE
Associate editor and chief correspondent
Orient Aviation Media Group
