Historic loss at Singapore Airlines showcases Asian aviation woes

Linda J. Dodson

SINGAPORE — Asia’s airlines reported massive losses in the January-March period on the coronavirus pandemic, highlighting a stunning reversal for companies that until last year had profited from rising travel demand in tandem with the region’s rapid economic growth.

With the coronavirus outbreak becoming more serious for most countries from April, the impact on the aviation industry is likely to be prolonged, forcing many carriers to secure bridging capital to survive the crisis.

Singapore Airlines on Thursday logged a net loss of 732 million Singapore dollars ($515 million) for the quarter, down from a SG$202 million profit for the same period last year.

As a result, the company’s net loss for the fiscal year through March reached SG$212 million, marking the airline’s first-ever annual loss since it separated from Malaysia-Singapore Airlines in 1972.

“Fears about the spread of the virus, as well as global travel restrictions and border controls, led to a collapse in the demand for air travel during the quarter,” the company said in a statement, adding that the recent collapse in oil prices also led to a fuel hedging loss.

Flying to over 130 destinations globally, Singapore Airlines has no domestic aviation market, and appears to be one of hardest-hit carriers in Asia.

Since late March it has cut 96% of its passenger capacity due to international travel restrictions. For the March quarter, the number of passengers dropped 26% from a year ago, and the load factor declined to 73%, from 82% a year earlier.

Elsewhere in Asia, March quarter results for airlines showed a similar trend.

The aggregate net loss of the region’s six major airlines that already reported results — China Eastern Airlines, China Southern Airlines, Air China, Japan’s ANA Holdings, Japan Airlines and Singapore Airlines — reached $3.2 billion, plunged from a $1.6 billion profit a year earlier.

Japan’s ANA marked a net loss of 58 billion yen ($547 million), the worst quarter ever for the company, dragging down annual net profit for the fiscal year ended in March by 75%.

“The impact of the coronavirus on air travel demand widened significantly from February,” said president Shinya Katanozaka during a teleconference on April 28.

Japan Airlines marked its first quarterly loss since relisting in 2012, at 22 billion yen. The so-called “big three” carriers in China, the country where the coronavirus originated, each marked a quarterly loss of over $500 million.

Other major airlines such as Thai Airways International and Malaysia’s AirAsia Group have yet to announce quarterly results.

But their operational data already show the difficulty of their respective situations. Thai Airways’ number of passengers carried during the three months was 30% less than a year ago, with the load factor down 9 percentage points to 72%.

The new coronavirus started to spread from China, and countries gradually closed borders, affecting airlines’ international flights.

After the World Health Organization declared a pandemic in March, many countries in the rest of the world started to impose full or partial lockdowns, resulting in weak demand on domestic routes as well.

Now, South Korea, Thailand and some other countries and regions are reopening the economies. But recovery in air travel demand will likely be slow, with domestic flights resuming first. International flights will likely restart step by step after governments ease border closures.

“I don’t envision a quick recovery [in international traffic] because many people are poor now, don’t have the means and mood to travel overseas and companies will naturally curb business travel for the foreseeable future,” former Maybank Kim Eng aviation analyst Mohshin Aziz told the Nikkei Asian Review.

Referring to Singapore Airlines, he said the company is vulnerable to the pandemic as its business model is based on being a network carrier.

“[The] bulk of its mainstay passengers’ borders [such as Malaysia, Indonesia and India] are closed,” he noted. “Therefore, it will be exceptionally hard to obtain healthy load factors anytime soon.”

On Wednesday, the International Air Transport Association (IATA), an airlines industry group, projected that air travel demand will exceed the 2019 level only in 2023.

“Rebuilding passenger confidence will take longer. And even then, individual and corporate travelers are likely to carefully manage travel spending and stay closer to home,” said Alexandre de Juniac, IATA’s Director General and CEO.

Moreover, the safety measures that airlines plan to introduce when resuming flights, such as less dense seating, could also curtail their earnings in coming quarters, meaning airlines must brace for prolonged damage to their balance sheet.

As such, airlines are rushing to raise capital to weather the present difficulty, on top of measures such as capacity reduction and cost-cutting including employees’ unpaid leave and management pay.

Singapore Airlines is raising up to SG$15 billion through sale of new shares and convertible bonds, which will be backed by its largest shareholder Temasek Holdings, the state investment firm.

Korean Air Lines also said on Wednesday it would raise 1 trillion won ($816 million) through the sale of new shares, while ANA has secured 950 billion yen in loans.

Aviation research company CAPA in March warned that most airlines would be bankrupt by the end of May, calling for coordinated support by governments and the industry.

Indeed, some airlines have already filed for bankruptcy, including Virgin Australia Holdings, in which Singapore Airlines holds about a 20% stake, as well as Avianca Holdings, one of Latin-America’s largest carriers.

Meanwhile, China’s big three are expected to record smaller losses in the April-June quarter due to the recovery in domestic traffic and the collapse of global fuel prices, said DBS Group Holding’s aviation analyst Paul Yong in a May 8 report, pointing out that the coronavirus outbreak was at its worst in the first quarter for China and in the second quarter for the rest of the world.

“We expect losses to narrow in the second quarter before moving back into the black on a V-shaped recovery for the domestic sector, which could fully recover by the early part of the fourth quarter,” he said.

Additional reporting by Mayuko Tani in Singapore.

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