Impact of COVID-19 on the Aviation industry in Southeast Asia

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Global aviation has been one of the worst-hit industries by the NOVEL COVID-19 virus. As the global death toll due to this pandemic COVID-19 exceeds 940000, the number of casualties has been lower in Southeast Asia than in other regions, such as America and Europe. The numbers however have increasing since June 2020. At the global peak period of COVID-19 (in MARCH-APRIL 2020), the virus impacted almost all the major regions in a similar manner. According to IATA (International Air Transport Association), the statistical percentage change in passenger demand (2020 vs 2019) for the Singapore Airline industry is a -48% dropdown in passenger demand. All other southeast Asian countries are also facing more than -50% dropdown in passenger demand. The main reason behind this dropdown is the international restrictions and fear of pandemic in the minds of people. According to the World Health Organization the region recorded 22% of all new deaths in the last seven days but retains low overall cumulative deaths relative to the region’s population (46 per million population). Currently, some international flights are resuming with new standard operating procedures. Thus, the aviation industry is getting back on its feet but slowly & with SOPs (Standard Operating Procedures). It has been and will remain the case that southeast Asian countries are almost attached with the global economy and depends on investment and trade outside and inside the region to drive their economic development. The aviation industry is a major means of trading but due the international travel restrictions both investments and trading are impaired. Some important effects and impacts of the pandemic on aviation in a few Southeast Asian countries are:

  • The Government of Indonesia had allowed domestic flights to resume on 7th may following suspension during the COVID-19 pandemic on 24 April. On 2 April 2020, Indonesia announced a ban on foreigners from entering their borders. But unfortunately, now the graph of deaths and cases is going up so the government needs to take some steps again.
  • The National Economic & Development Authority of Philippines projects a loss of at least 1200k tourist arrivals assuming that the pandemic perseveres through June 2020. It caused a huge drop in annual revenue of airlines in this region.
  • As said by the Civil Aviation Authority of Vietnam (CAAV), more than 200 registered aircrafts were grounded from the total of 234 Vietnam registered airplanes. Despite this, airlines still have to spend billions of dollars to maintain operations such as: paying for employee, aircraft leasing cost, apron parking fee & aircraft maintenance. According to an estimate by Vietnam Airlines, its revenues for 2020 could decrease by US$538 million.
  • Singapore’s aviation industry is also facing the COVID crunch. Southeast Asia’s economic powerhouse, the tiny city-state of Singapore took an unconventional approach to tackle the COVID-19 pandemic. While the number of cases has decreased significantly, one of the country’s biggest assets as an aviation hub, has crushed. On March 23, 2020, flag-carrier Singapore Airlines and its subsidiary Silk Air reduced their capacities by as much as 96%. The group’s low-cost airline Scoot also postponed most of its network. As many as 185 airplanes out of the total fleet of 196 were grounded. Management of Singapore airline also took a pay cut and staff up to certain management levels had to take unpaid leave. Shares also dropped to its lowest since 1998 to the extent that they had to halt trading. On June 1, 2020, Singapore airlines intended to restart services to twelve destinations worldwide bringing down flight reductions from 96% to 94%. Business aviation was less affected than airline traffic, in that top executives’ travel is often considered essential. As passenger flights were cancelled, the cost of sending cargo by air changed rapidly. The cost of sending cargo across the Pacific Ocean tripled by late March.

Outlook in the next one year:

IATA is expecting a fast improvement in passenger demand in 2021, in spite of, still below 2019 levels, it yet expects a collective loss of €15.8 billion next year. As predicted by IATA, Air travel may recover more sluggishly than most of the economy. Southeast Asia RPKs (Revenue Passenger Kilometers) is expected to recover to 2019 levels in 2023, 2 years behind GDP recovery. Governments of Singapore, Vietnam, Indonesia & all other Southeast Asian countries have given unprecedented support.  Wage subsidies, grants and loans would allow strong GDP rebound in the next one year. Business confidence will rebound in 2021 in the aviation industry, as lock-downs get relaxed in this region. Resolving issues related to health and safety is essential for international travel. Until a vaccine is developed, opening up borders to travel requires a fall in COVID-19 risk and infection numbers. International RPKs will lag domestic air travel markets in 2021. International air travel may not recover 2019 levels until 2023-24. Outlook in the next one-year shows return to growth post-COVID but at a lower level. Southeast Asia RPKs forecast to be 32%-41% below expected levels in 2021.

” We haven’t put out a forecast beyond 2021,” says IATA chief economist Brian Pearce. But, citing the example of what happened in the financial crisis, he says:” If you follow the trend, 2022 looks like it could be a year for a return to profit and certainly that would be in line with our longer-term forecasts in growth in passenger markets.”

For airlines in Southeast Asia, increasing the fleet size reflects a developing demand for domestic travel. But putting aircrafts back into service is not always tied to demand. For a few airlines, the decision to boost capacity reflects efforts to grab market share during this ambiguous period. And for many others, bringing back older aircrafts allows them to postpone, or even cancel, new airplanes orders and save valuable funds.Most airplanes returning to service are narrow body aircrafts. This shows their current admiration with airlines due to cost efficiency. They also tend to dominate domestic travel, which is the first market segment that is showing signs of recovery. In contrast to widebodies, there have also been significantly fewer announcements on early narrow body retirements by airlines

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