THIS period is the aviation industry’s darkest hour with no clear signs when airlines will be able to restart the hundreds of airplanes grounded at airports and other global sites.
February passenger traffic declined 14.1% and is said to be the steepest drop since the 9-11 terrorist attacks. The plunge is bigger in the Asia-Pacific region, with traffic plummeting 30.4% compared to a year ago, according to the International Air Transport Association (IATA).
As air travel demand collapses because of the coronavirus (Covid-19) pandemic, the fall in demand will be the deepest from April to June this year with a 71% slump. The IATA represents 290 airlines globally, accounting for over 80% of global air traffic.
The risk is that airlines will run out of cash before any recovery is seen. What most airlines have is about two months of cash, even though some stronger ones can go on for half a year. That is why globally, airlines are asking for aid from the government in the form of cash, loans, grants and rebates to take them through these turbulent times.
The Malaysian government has yet to come up with a plan to help the local airlines, though the agency that may announce anything is likely to be Khazanah Nasional Bhd. The agency may have to fork out anything between RM8bil and RM15bil if it wants to help all the airlines ride the tide and not just Malaysia Airlines, in which it has total control. The AIRASIA Group has said that it just wants loans, while Malindo Air also needs some form of aid.
The IATA believes that airlines globally may burn about US$61bil of their cash reserves in the second quarter as their fixed cost is high, and post a quarterly loss of US$39bil in the second quarter. The IATA now expects airlines to lose US$252bil from its earlier estimate of US$113bil for the full year. Ticket refunds globally alone are a whopping US$35bil.
As airlines burn cash rapidly, the danger is that carriers may run out of money before recovery arrives. That would mean the loss of connectivity which is very important for a country, as stronger competition will take over routes quickly.