According to analysts, Singapore as an aviation hub is becoming “extremely vulnerable” as the number of countries imposing travel restrictions increases in order to contain the COVID-19 spread.
Smaller carriers are also not spared during this time as they may also shut down due to demand shortage, analysts noted.
On Wednesday (18 March), Singaporeans were advised to immediately defer all travel abroad to avoid importing more cases into the country. The number of infected cases have reached more than 200,000 with more than 8,000 deaths reported globally, whereas Singapore has 313 confirmed cases.
With the restrictions in place, the airline industry is affected as many airlines are suspending flights.
Singapore Airlines (SIA) announced that it would cut its capacity by 50 per cent due to increased travel restrictions and to curb the pandemic spread. “Given the growing scale of the border controls globally and its deepening impact on air travel, SIA expects to make further cuts to its capacity,” the airline noted.
Also, the entire fleet of 320 aircraft and 18 Airbus will also be grounded by Singapore-based Jetstar Asia as all flights get suspended for at least three weeks from 23 March until 15 April. “Jetstar Asia is containing the impact as much as possible by asking senior leadership to take salary cuts and the rest of the teams to take paid and unpaid leave during this time, in addition to cancelling annual bonuses and the Annual Wage Supplement,” a Jetstar Asia spokesperson remarked.
The International Air Transport Association (IATA) cautioned in early March that the outbreak could devastate passenger airlines up to US$113 billion (S$162.7 billion) in revenue lost in 2020.
In February, passenger movements dropped 32.8 per cent year-on-year, as reported by Changi Airport. Asia Managing Director for industry publication Flight Global, Greg Waldron pointed out that “the demand has basically collapsed…I think people are fearful of the virus, but also all the different country closures, the quarantines – all these different things just mean that the market for air travel has pretty much vanished overnight.”
Aviation analyst and founder of consulting firm Endau Analytics, Shukor Yusof told Channel News Asia, “Singapore is extremely vulnerable as it is a financial centre and an aviation hub…It will immediately have a knock-on impact on the hospitality sector, and likelihood of job losses if this is prolonged.”
Mr Waldron believed that suspension of flights is the right move by airlines. “Basically, I think the airlines need to do everything possible to minimise their costs at this time. It’s not a question of making profits anymore,” he hinted.
Although SIA announced a 50 per cent cut in capacity, Brendan Sobie, the founder of Sobie Aviation, believes that “much deeper cuts” may be coming in the next few days.
Mr Sobia noted that Singapore does not have a domestic flight market to rely on, compared to a country like China, which is showing recovery signs due to its recovering domestic aviation market.
Like JetStar Asia, airlines can opt to cease their operations completely until the situation improves, but those airlines may risk losing flight slots, Mr Shukor remarked.
SMALLER CARRIERS AT HIGHER RISK
According to the report by CAPA Centre for Aviation, the impact of travel restrictions could mean bankruptcy for “most world airlines” by the end of May 2020.
There is need for coordinated industry and government action in order to avert such a catastrophe, CAPA added.
CAPA’s estimate is “rather optimistic”, as Mr Shukor opined because many airlines may not survive beyond end-May.
Terence Fan, a transport economist at Singapore Management University, noted that government funding and money availability will mean that different airlines would be impacted differently.
“But in the absence of any actions, I think we may see some of the smaller carriers being forced into some sort of liquidation administration in a few months time,” he added.
He went on to suggest that regional governments may want to maintain a national airline so that financial support will be provided. “The question is what extent they’re going to keep propping up (the airlines),” and that governments may provide less financial support than before, he asserted.
The local maintenance, repair, and overhaul (MRO) will suffer a decline too due to the fall in flight demand, Assistant Professor Fan pointed out.
Additionally, Mr Waldron said that even when airlines receive financial bailouts due to their high-profile status, many other sectors impacted by COVID-19 are also competing for government support.
“If you look at it from the government’s perspective, it’s not only the airlines that are having trouble right now…The hotel industry is having trouble. The restaurant industry is having trouble. Pretty much anybody who does anything is having a difficult time,” Mr Waldron added.
Meanwhile, Deputy Prime Minister Heng Swee Keat announced a S$112 million package in his budget speech in February in order to help the country’s aviation sector weather the COVID-19 outbreak.
Although larger airlines will survive this period, costs may still incurred such as cost-reducing measures and layoffs, Mr Waldron remarked.
Compared to budget carriers which do not have cargos services, SIA and other full-service airlines also run cargo services, so they can still earn revenue, Mr Sobie pointed out. So, budget carriers have a disadvantage and may have begun struggling early on before the outbreak occurred, he added.
Even so, governments may still provide support for the aviation industry. Mr Waldron said, “I think one thing that could bode well for the airlines (hoping to) receive a bailout is that governments could view them as a strategic asset for economic growth, which they are…You could argue that airlines have a very important role to play in the recovery of the economy. I’m sure that airlines will make that case.”