KUALA LUMPUR: The overall travel suspension from or to China caused by the coronavirus outbreak will adversely impact Asian airlines’ yields and profitability, which are already depressed.
Aviation specialists said several markets in Asia had been suffering from overcapacity and “irrational” levels of competition.
They warned that following significant reduction and suspension of services to China, the challenges facing airlines throughout Asia would intensify.
Airlines initially suspended services to Wuhan, the origin of Coronavirus, but in recent days had expanded suspensions to include all or nearly all international routes to mainland China.
However, airlines have not specified the duration of the suspension as they continue to monitor the situation.
Malaysian carriers AirAsia Group Bhd and Malindo Air suspended all flights to and from Wuhan China recently.
Other airlines that have done the same included Singapore Airlines, Lion Air, Air Seoul, Air India, Air France, British Airways and Lufthansa.
As of yesterday, there were more than 24,000 confirmed cases of the virus globally with over 490 deaths, according to Chinese officials and the World Health Organisation (WHO). The bulk of it were reportedly in China.
“Cutting back (frequencies) at short notice can impact profitability,” independent analyst Brendan Sobie told the New Straits Times (NST).
He pointed out that airlines had long-term capacity commitment in terms of fleet size and number of crews, maing it difficult to manage capacity cuts at short notice without impacting profits.
Sobie cautioned that there would be a significant impact on revenues and profitability for all of the main Asian airlines in the first half of this year.
“There will be wider economic impact as well due to the reduction in the number of travellers and particularly the number of visitors from China. Several Asian countries have big tourism industries that rely heavily on China including Malaysia,” he added.
He said industry forecasts issued prior to the emergence of the virus and predicted higher airline profitability in 2020 was now unlikely achievable.
“I believe it is likely we will see a reduction in airline profitability in Asia Pacific in 2020,” he said.
However, he said the market typically recovered relatively quickly after these types of situation.
While it would be hard to offset the losses from the first half of this year the outlook could improve in the second half, he added.
MIDF Research aviation analyst Adam M Rahim said airlines should solidify their domestic services as demand for passengers travelling within a country would always remain strong.
“Sustain demand usually come from domestic passengers travelling during festive seasons, prompting airlines to continue increase flight frequencies,” he told the NST.
Adam said Malaysia Airports Holdings Bhd’s passenger growth had dropped 1.5 per cent year-on-year (YoY) to 33.5 million during the Severe Acute Respiratory Syndrome outbreak in 2003.
“Total international passengers at the main terminal of the Kuala Lumpur International Airport travelling to and from China declined by 10.7 per cent YoY during the affected period.
“Henceforth, it would be apt to consider any potential impact that the coronavirus outbreak towards the passengers carried by AirAsia Group Bhd,” he said.
Adam said AirAsia’s available seat kilometers - passenger carrying capacity - for China routes contributed about 10 per cent to 15 per cent its total capacity.
“AirAsia’s long-haul affiliate, AirAsia X Bhd has higher exposure in China routes, given the non-exposure to Asean,” he added.
MIDF Research expects AirAsia X’s revenue passenger kilometres to decline by up to 20 per cent, assuming a worst case scenario of full refund by affected passengers.
“We understand that passengers flying to or from destination in mainland China are given an option for a credit account or full refund,” he added.