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Divided over recovery prospects

KUALA LUMPUR: Local airlines and regional operators are divided about the aviation sector's recovery prospects, owing to continued uncertainty about travel restrictions and the evolution of Covid-19 variants, which could reduce demand for air passengers.

Malaysia Airlines Bhd (MAB) said the outlook for 2022 and 2023 for the aviation industry remains uncertain, with the different waves of infections continuing to spread to over 57 countries.

"This could further halt the recovery efforts of the sector that has tirelessly weathered the effects of the pandemic to stay afloat should travel restrictions continue to be imposed," MAB spokesperson told the New Straits Times (NST) recently.

The aviation sector has been bracing for the pandemic turbulence for nearly two years.

As a result, some carriers have gone bankrupt without recurring income (demand) and losses incurred from fuel hedging, exacerbated by the evident cash burn rate to service their fixed costs.

These include employees salaries, aircraft financing, hangar rental, amongst others.

According to the International Air Transport Association (IATA), global passenger traffic will likely not return to pre-Covid-19 levels until 2024.

MAB stated that the projection did not account for the severity of the Omicron Covid-19 variant, which is still prevalent globally.

"Omicron to a certain extent creates demand uncertainties, particularly with the reintroduction of strict travel restrictions and requirements, such as new testing rules, border closures and extensive quarantine measures in certain countries.

"This will also impose operational challenges to the airline's operators. Therefore, we must continuously monitor and adjust our operation processes and policies according to the latest developments about health and safety standard operating procedures (SOPs) from various authorities."

Nonetheless, the national carrier said domestic markets might recover faster than other markets due to the pent-up demand by travellers, which could contribute to the nation's economic recovery.

MAB also said the recovery of the aviation sector would likely continue to be an 'uphill battle' and depend on various factors, including travel demand, industry capacity and market environment.

"We remain optimistic that once travel restrictions continue to ease, demand will continue to be there as consumers seek to revenge travel. Then, we will regain momentum towards industry rebound."

Another airline chief executive who requested anonymity concurred that domestic might continue to gain momentum in 2022.

However, he cautioned the capacity and pricing environment would remain competitive.

"Yields will be depressed for the foreseeable future with the slow anticipated recovery of international markets," he told the NST.

He said 2022 may continue to be challenging but should show significant improvement compared to 2021 and 2020, assuming no further return to lockdowns.

"International recovery might be muted in 2022 with any restart likely to be driven by the Vaccinated Travel Lane (VTL).

"China market, a huge source market for Malaysia, will likely remain largely closed in 2022.

"All carriers will be fighting to rebuild networks and capacity share, hence anticipated downward pressure on yields."

He said Malindo Air could emerge as a smaller version of an airline, based on its historically losing jet operations in the Malaysian domestic market.

Meanwhile, he said AirAsia was the aggressor on rebuilding capacity, but they will need to reduce the unit cost to avoid inevitable unit revenue pressure.

"Airlines will need to be agile and fast to respond to ever-changing border restrictions as they rebuild their networks. As a result, the first-mover advantage will be critical.

"Any meaningful recovery will depend on government policy. I think 2022 will be a year of recovery but with a lot of unknowns," he added.

AirAsia Aviation Ltd chief executive officer Bo Lingam said 2022 could deliver a less restricted global travel environment and more normal operations for AirAsia Group Bhd.

This is attributable to high vaccine rates, better education and testing in the group's key markets.

"We gradually resume operations in our core markets as travel restrictions continue to ease. We believe this momentum will continue in 2022.

"We hope to be flying to pre-Covid levels and even higher on some routes next year.

"We hope global health experts are right to date with many saying Omicron is less severe and that current vaccines should be enough," he told the NST.

Lingam said 2022 could provide a better global travel environment where airlines continue to resume as the world gradually opens up throughout the year.

"A silver lining of the pandemic…we have been able to review every aspect of our airline operations to put in place a more robust model that is more resilient and will see us return stronger than ever soon."

Emirates country manager Malaysia Mohammad Al Attar said the return to profitability could take a long way. Still, the airline has been scaling up its operations, restoring its network, and gradually adding extra capacity and frequency to destinations to match demand.

"We are hopeful that with the restoration of 90 per cent of our pre-pandemic network. Therefore, we expect to return to pre-pandemic by mid of 2022.

"We are also on track to restore 70 per cent of our capacity by the end of December 2021," he told the NST.

Mohammad said Emirates currently operates over 120 destinations, with the group's A380 aircraft fleet in operation to over 25 destinations globally.

"We are on the road to recovery. We recently embarked on a global recruitment drive to hire more than 6,000 staff over the next six months.

"As restrictions ease worldwide with the broader administration of the vaccine, we will need additional pilots, cabin crew, engineering specialists and ground staff to support the airline's ramp-up of operations across our global network," he added.

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