Southeast Asian carriers struggle as global travel recovers unevenly

By TIN Media | Airlines Published 5 months ago on 14 June 2021
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International airline earnings reflect the pandemic's sluggish recovery, as they struggle with debt taken on to weather last year's drop in passenger demand.

While carriers located in the United States have reached a point of no return because to improvements in vaccines, Southeast Asian airlines continue to encounter headwinds.


The operations of AirAsia Group would take around two years to normalise, according to CEO Tony Fernandes during the low-cost airline's January-March earnings release.

Covid-19 remain high in AirAsia's service region, including Malaysia, where a statewide lockdown began on June 1, 19 infections remain high. The company posted a financial loss of RM767 million last month, lowering its capital ratio below zero and putting it in the negative net worth category.

For the fiscal year ending March 2021, Singapore Airlines reported a record net loss of S$4.27 billion. Last year, Thai Airlines International went into receivership, with liabilities exceeding assets by 129 billion baht at the end of the year.

High-fixed costs, like as labour and plane leasing, are borne by airlines. They borrowed significantly to secure an operating cushion when the epidemic interrupted or severely restricted business. Interest-bearing debt held by 20 major airlines totaled $285 billion at the end of March, up 40% from a year before.

Through the end of March 2020, cash reserves at the 20 carriers fluctuated between US$50 billion and US$60 billion, but soared to US$112.7 billion in March of this year.

In a year, American Airlines and ANA Holdings doubled their cash reserves. The 20 carriers suffered losses as a result of borrowing to boost reserves, lowering their collective capital ratio from 18 percent to 10%.

While cash reserves at Lufthansa and Air France-KLM remained stable, their interest-bearing debt increased by 50%. Their ability to sustain a long-term Covid-19 slowdown would be compromised, as would their ability to invest once the pandemic is over.

ANA Holdings and Japan Airlines have raised funds through the stock market, bringing their capital ratios up to the 30%-40% range. Singapore Airlines was able to raise funds from current owners, allowing it to increase its capital ratio to over 40%. As of March 31, both American Airlines and Air France-KLM had a negative net worth.

The airline industry's cash flow problem is expected to persist. Global carriers are expected to burn through US$81 billion in cash this year, compared to US$149 billion in 2020, according to the International Air Transport Association. In 2022, the industry's quarterly cash flow is expected to improve.

Vaccination initiatives in each country are expected to influence profits in the future.

The three largest US carriers, including American Airlines, posted total financial losses of $3.78 billion, down 60% from their peak. Increased immunizations have helped domestic tourism demand rebound, resulting in a 50% reduction in daily cash outflow. Delta Airlines hopes to turn a profit in the July-September period.

Carriers operating in markets where recoveries are slow have the issue of raising money. According to the International Air Transport Association (IATA), governments throughout the world have offered the airline industry with more than US$225 billion in pandemic-related assistance as of March.

Last May, then-IATA director-general Alexandre de Juniac urged that governments should "concentrate on ways that will not further increase the financial load" of the industry in response to the pandemic's effects.


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