SINGAPORE: International travel is grinding to a virtual halt as the COVID-19 outbreak prompts a fast-growing list of countries to impose travel restrictions.
Most international flights could be suspended for at least several weeks, creating an unprecedented crisis for the global airline industry.
Asia’s airline industry has already been dealing with the COVID-19 crisis for several weeks, which has seen sharp reductions in passenger traffic not been experienced since SARS in 2003.
HUGE DROPS IN AIR TRAFFIC AT CHANGI TO BE EXPECTED
Even before the World Health Organization’s declaration of a pandemic, this COVID-19 outbreak had already become the worse crisis for Asian airlines in a few decades.
Changi Airport has already announced a 33 per cent nosedive in passenger traffic for February on Friday (Mar 13).
This demand declined further in the first half of March and is expected to drop even more in the second half of March and April due to the wave of new travel restrictions announced by many more countries in recent days.
India, one of Changi’s largest markets, suspended all visitor arrivals on Mar 13. Australia and New Zealand, major markets for Changi, have implemented a new policy requiring all arriving passengers to self-quarantine for 14 days.
Singapore-Europe traffic will also decline sharply after Singapore’s fresh ban on all visitors and transit passengers who have been in Italy, France, Germany and Spain within the last 14 days.
Singapore’s earlier bans on passengers who have travelled to China and South Korea within the last 14 days have led to almost all flights from these two keys markets being suspended.
Changi passenger traffic will likely drop by over 50 per cent over the next two to three months.
A recovery is possible in the second half if the virus is contained, but for the full year, Changi will almost certainly record a decline that surpasses the 15 per cent drop in 2003 due to SARS.
DOMESTIC TRAVEL TENDS TO RECOVER FASTER THAN INTERNATIONAL TRAVEL
Singapore and its aviation sector are hardly alone as the COVID-19 crisis is now impacting all airlines, airports and countries. But Singapore is somewhat disadvantaged as it does not have a domestic market.
While international travel is slowing to a crawl – and could stop entirely – domestic airline travel is generally less impacted.
Malaysia Airports, which operates Kuala Lumpur International and virtually all airports in Malaysia, reported a 30 per cent drop in international passenger traffic for February, similar to Changi’s, but a more modest 17 per cent drop in domestic passenger traffic.
In some Southeast Asia markets such as Indonesia, airlines have been expanding domestic capacity by reallocating aircraft from suspended international routes.
Demand for domestic travel in Myanmar, Thailand and Vietnam also have remained relatively strong while international traffic dropped significantly.
There is a risk domestic travel could be impacted significantly and even stop entirely. For example, the Philippines has banned domestic travel to and from Manila in an attempt to contain and prevent the virus from spreading to smaller cities and smaller islands.
However, while domestic air travel may grind to a halt over the next month in Asia and elsewhere, domestic travel generally recovers faster than international travel once the global situation stabilises.
The domestic Chinese market is starting to recover but it will take more time for the international market to bounce back.
BAD NEWS FOR SIA
Countries such as Singapore that rely entirely on the international market therefore are likely to have a slower rate of recovery.
This does not bode well for the Singapore Airlines (SIA) Group, which has so far been slow to cut capacity to match the drop in demand, resulting in sharp load factor declines.
Based on the several waves of cancellations announced to date (including the last announcement on Thursday), SIA Group has cut 19 per cent of flights for the February to May period.
This included a 16 per cent reduction for Singapore Airlines, a 21 per cent reduction for regional subsidiary SilkAir and a 23 per cent reduction for the group’s budget airline Scoot, based on announcements made.
SIA is expected to announce a new and much bigger wave of flight cuts soon, after accounting for recent developments in India, Europe, Australia and New Zealand. But even before these, demand across its network had declined at a rate that far outstripped SIA’s reductions in flights.
QANTAS LEADS THE WAY
Singapore’s only other local airline, Jetstar Asia, and its parent the Qantas Group have so far been more proactive at cutting capacity in the Singapore market.
Jetstar Asia initially announced on Feb 20 a 15 per cent cut in flights through the end of May. Jetstar Asia has since announced the cut would be expanded to 40 per cent for April and May, which will result in the grounding of the equivalent of seven of its 18 A320s.
Jetstar Asia has suspended services to all five of its Chinese destinations as well as Hong Kong and Taipei, leaving Jetstar Asia with 18 destinations, in ASEAN, Japan and Australia.
Jestar Asia and all three SIA Group airlines have been encouraging crew to take voluntary leave, a sensible move which allows airlines to temporarily reduce flying without having to cut salaries or headcount.
Jetstar Asia’s parent, the Qantas Group, also announced last week cuts in Qantas-operated flights to Singapore as part of a 31 per cent reduction in Qantas Airways and Jetstar Airways capacity to Asia.
Prior to the start of the crisis the Qantas Group averaged 96 daily departures from Singapore including 87 from Jetstar Asia, seven from Qantas, one from Jetstar Airways and one from Jetstar Pacific. For now, this has been slashed by 40 per cent to an average of 58 daily departures. A much more significant cut is likely in the coming days.
But the SIA Group is much larger than Jetstar and the Qantas Group’s operations in Singapore, which could partly explain SIA’s slower response
Jetstar Asia is the smallest of Singapore’s four local airlines, flying 4.5 million passengers in calendar 2019. In contrast, Singapore Airlines carried 22.3 million passengers in 2019, Scoot 11.1 million and SilkAir 4.9 million.
ROUGH OUTLOOK FOR CHANGI AIRPORT AND SIA
The days ahead will be rougher for Singapore’s aviation industry.
Changi Airport handled 68.3 million passengers in 2019, up 4 per cent from 2018. Passenger traffic this year could dip below 50 million, which would mark the lowest figure for Changi since 2011.
The four Singapore based airlines are the most impacted. They account for around 60 per cent of Changi’s total passenger traffic when removing the relatively small number of passengers they carry on routes that do not touch Singapore.
Qantas and Malaysia-based AirAsia are also the largest foreign airlines in Singapore, each accounting for roughly 3 per cent of Changi’s total traffic, excluding AirAsia affiliates based in other countries and AirAsia X.
The recent sharp reduction in fuel prices does not provide much relief to airlines given demand is so low at the moment that airlines will struggle to achieve profitable even if the cost of fuel was zero.
Several major airline groups such as SIA are also significantly hedged, offsetting any cost savings from low fuel prices.
In fact, a steep hedge loss would put SIA’s remarkable record of never incurring a loss for a fiscal year in jeopardy. An annual operating loss is also possible if the COVID-19 crisis continues for several months.
For now, SIA is expected to post operating losses in the March and June quarters but could potentially return to profitability after, assuming the virus is contained.
WHAT CHANGI AIRPORT AND SIA CAN DO
Qantas provides further food for thought on how Changi Airport and SIA could approach the next few months.
It has focused cuts on the A380, the world’s largest aircraft, by grounding all but two of its A380s. Several other A380 operators globally have similarly grounded a large portion of their A380 fleet.
Qantas’ increased reliance on smaller more efficient widebodies such as the 787 is sensible and should be followed by other airlines.
In contract, SIA has cut proportionally about as many flights on other aircraft as those flown by the A380
Relying on smaller aircraft also helps airlines mitigate load factor declines, maintain frequencies on key business routes and retain airport slots.
Airports could waive slot requirements, which require airlines to use their slots at least 80 per cent of the time or risk losing them, but many have so far been slow to grant airlines such relief.
Qantas’ recent move to extend capacity cuts to September is also noteworthy. Airlines including SIA should consider extending flight cuts beyond May and provide consistent yet reduced schedules over the next several months.
Ad hoc cancellations with flights being canned on different days each week have made it hard for passengers still flying to plan their trips.
RELIEF AND NIMBLENESS NEEDED
Overall, it has been extremely challenging for airlines to match capacity with demand during the COVID-19 crisis due to its fast-evolving nature. No one knows how long this crisis will last.
Airlines, already reeling from huge potential losses, need to be nimble and provide unusual ticket flexibility that recognises the challenges their customers are also facing.
Airports and governments need to provide relief to help airlines get through this crisis and return in full force when the market recovers.
Brendan Sobie is the founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He was previously chief analyst for CAPA – Centre for Aviation.