Singapore aviation industry ‘extremely vulnerable’ to fallout from COVID-19, say experts

SINGAPORE: With an increasing number of countries enacting travel restrictions to curb the COVID-19 outbreak, Singapore is left “extremely vulnerable” due to its status as an aviation hub, say analysts.

Smaller carriers may also end up going belly-up during this period, due to a drop in demand, they noted. 

This comes as Singaporeans were advised on Wednesday (Mar 18) to defer all travel abroad with immediate effect due to a heightened risk of importing COVID-19 cases into Singapore. 

Singapore has 313 confirmed cases of the coronavirus, which has infected more than 200,000 worldwide, resulting in more than 8,000 deaths.

Such restrictions have impacted the airline industry, with numerous airlines suspending flights. 

On Tuesday, Singapore Airlines (SIA) said it would slash its capacity by 50 per cent, attributing the move to increasing travel restrictions as a result of countries the spread of COVID-19. 

“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 national carrier said in a statement. 

Separately, Singapore-based Jetstar Asia announced it was grounding its entire fleet of 18 Airbus 320 aircraft, with all flights suspended for at least three weeks, from Mar 23 to Apr 15. 

“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,” said a spokesperson for the budget carrier. 

Earlier this month, the International Air Transport Association (IATA) warned the COVID-19 pandemic could cost passenger airlines up to US$113 billion (S$162.7 billion) in lost revenue this year. 

Changi Airport reported a 32.8 per cent year-on-year decline in passenger movements in February due to COVID-19. 

“The demand has basically collapsed,” noted Greg Waldron, Asia managing editor for industry publication FlightGlobal. 

“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,” he said. 

“Singapore is extremely vulnerable as it is a financial centre and an aviation hub,” aviation analyst Shukor Yusof told CNA. 

“It will immediately have a knock-on impact on the hospitality sector, and likelihood of job losses if this is prolonged,” added the founder of consulting firm Endau Analytics. 

The move by airlines to suspend flights is the right one, said Mr Waldron. 

“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.”

Independent aviation analyst Brendan Sobie said while SIA had announced a 50 per cent capacity cut, he expected “much deeper cuts” in the next few days. 

The founder of analysis firm Sobie Aviation noted that unlike in countries such as China, where the domestic aviation market has started to show signs of recovery, SIA does not have a domestic market to fall back on. 

Like JetStar Asia, airlines can also choose to shut their operations completely until the situation improves, added Mr Shukor, though he noted they then run risks such as losing flight slots. 

READ: COVID-19 could cost airlines up to US$113 billion in lost revenue this year: IATA

READ: Commentary: COVID-19, the biggest crisis ever for Singapore’s aviation industry and Singapore Airlines

SMALLER CARRIERS AT GREATER RISK

In a report this week, the CAPA Centre for Aviation said that the impact of travel restrictions due to COVID-19 would leave “most world airlines” bankrupt by the end of May this year. 

Coordinated government and industry action would be needed to avoid such a catastrophe, said the Sydney-based industry body. 

Mr Shukor however described CAPA’s estimate as “rather optimistic”, noting many carriers would not be able to financially sustain themselves beyond end-May. 

Singapore Management University transport economist Terence Fan said different airlines would be impacted differently, depending on how much money they have and whether they receive government support during this time. 

“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,” said Assistant Professor Fan. 

Some governments in the region may wish to maintain a national airline and thus support them financially, he said. 

“The question is what extent they’re going to keep propping up (the airlines),” he added, noting governments may no longer provide as much as financial support to airlines as they used to. 

Assistant Professor Fan also noted the drop in demand for flights will lead to a decline in the local maintenance, repair and overhaul (MRO) sector. 

And while airlines may get such financial bailouts due to their high-profile nature, there are various sectors vying for government support due to the impact of COVID-19, said Mr Waldron. 

“If you look at it from the government’s perspective, it’s not only the airlines that are having trouble right now,” he said. 

“The hotel industry is having trouble. The restaurant industry is having trouble. Pretty much anybody who does anything is having a difficult time.”

In his budget speech last month, Deputy Prime Minister Heng Swee Keat announced a S$112 million package to help Singapore’s aviation sector tide over the coronavirus situation. 

Larger airlines may still pull through this period, said Mr Waldron, though he noted this may come at the cost of layoffs and other cost-cutting measures. 

Mr Sobie noted that SIA and other full-service airlines have cargo to depend on as a source of revenue, which budget carriers do not. 

This puts budget carriers at a disadvantage, he said, noting some may have already been struggling even before the coronavirus outbreak. 

READ: COVID-19: Tenants at Changi Airport to receive 50% rental rebate for 6 months

READ: US airlines face push-back in Congress on US$50 billion bailout proposal

Still, governments may yet be inclined to support the aviation sector, said Mr Waldron.

“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,” he noted. 

“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.”