ASIA INSIGHT
● The recent resurgence of Covid-19 infections across the region has snuffed out hopes that demand for travel will returning to pre-pandemic levels anytime soon. Last month, seat occupancy on Thai carriers fell to 13% of pre-virus levels, after an initial bump up to 46% in late December.
While domestic demand has started to return and major airline hubs such as Singapore and Hong Kong have allowed transit traffic to resume — with Thailand permitting the same this month — observers believe that a full recovery in regional air travel may take until 2025.
This is bad news for the aviation industry as airlines posted unprecedented losses. Thai Airways International last year lost 141.2 billion baht, 12 times the figure from the year before and the largest net loss in history for a listed Thai company. Singapore Airlines reported an operating loss of US$2.1 billion last year.
To cope, many airlines have buttressed their finances and pursued cost-cutting measures over the past year, with Singapore government backed Temasek Holdings raising S$15 billion for Singapore Airlines and the Hong Kong government leading a HK$39-billion bailout for Cathay Pacific.
The Airlines Association of Thailand, formed by seven airlines in Thailand including Bangkok Airways, Thai AirAsia and Nok Air, submitted a request to Prime Minister Prayut Chan-o-cha for soft loans last year. At the same time, airline staff have been asked to take unpaid leave, voluntary pay cuts and have been offered early retirement.
Despite efforts to keep them flying, 48 airlines globally failed last year, according to the travel data company Cirium.
The outlook for the industry this year will depend on major factors including the success of vaccinations, policies from governments on safe lanes for vaccinated people, and testing improvements to reduce the need for quarantine. Bilateralcorridors for work travel could also accelerate in the region.
In the face of such prolonged uncertainty, what can airlines do to ensure their survival?
Many have turned to freight. While cargo flights may not be able to replace the pre-pandemic volume of passenger flights, they have served as an adequate alternative revenue stream that taps unused supply of manpower and passenger aircraft.
Cargo flights grew 18.3% at the Hong Kong airport over the year. Globally the average international freight load factor rose by 7 percentage points to 66.4% last year, with cargo providing a significant boost to operating revenue.
As the world transitions to e-commerce, growth in cargo volume promises to be a bright spot during these turbulent times for airlines. There is also high potential for more cargo routes to be covered by air, with air cargo covering less than 1% of global trade despite representing 35% of the value.
Aviation leaders say that the air cargo industry will need to embrace digitalisation to ensure more reliable transport operations, faster processes and reduced costs.
The worldwide distribution of vaccines also presents a business opportunity for cargo carriers with climate-controlled facilities. For example, Singapore Airlines launched a dedicated cold chain service for the delivery of time- and temperature-sensitive perishable products including chilled meats, seafood, fruits and vegetables.
As the world continues to contend with fluctuating infection rates and disparities in the timeliness of vaccine roll-outs, the aviation sector will need to demonstrate their resilience through creativity, diversification and continued commitment to high-quality customer service.