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KUALA LUMPUR: The Covid-19 pandemic which has caused global economic shutdown with the risk of recession somehow provides an opportunity for Malaysia to reset its aviation industry and become profitable, says an analyst.

Sobie Aviation independent analyst and consultant Brendan Sobie said the local aviation industry was already at a critical juncture even before Covid-19, with all six airlines unprofitable in 2019 and the market suffering from overcapacity.
The government, he said, has a lot of initiatives for a reset, but the situation has become more important now as the industry is bleeding really badly and the potential for a collapse is real.

“For this reset to be successful, a broader discussion and rethink of Malaysia’s overall national aviation strategy needs to take place.

“In the interim, Malaysia needs to urgently provide support to all its airlines, to maintain jobs, connectivity and its role as a hub,” he said, noting that without Covid-19, this year was going to be a great year for Malaysia’s aviation sector.

Sobie said government support could be in the form of a job scheme, such as undertaken by Singapore and the United States, where the government takes over the wages of airlines’ employees in order to maintain their jobs and make sure they are there when this crisis is over.

He was speaking in a webinar session titled ‘The Impact of Covid-19 on the Malaysian Air Transportation Industry’ organised by the EU-Malaysia Chamber of Commerce and Industry (EUMCCI) today.

Other speakers joining the webinar were Edward Clayton, a partner at PricewaterhouseCoopers (PwC), and David Jones, head of the EUMCCI Aerospace Committee and managing director Asia Pacific for the Chartered Management Institute.

Clayton applauded the Malaysian government’s fast response to Covid-19, saying it was even faster than many other countries in the world, and the restriction on social distancing through the Movement Control Order.

He strongly agreed with the view that the governments in Malaysia and other countries must come forward and support the airline industry from collapsing due to the impact of Covid-19.
“The question the governments need to ask themselves is, do they see airlines as a utility or a luxury? To a large extent, in Southeast Asia airlines are a utility that we can’t survive without.

“So governments need to think about how (to keep) their utility alive and think about applying those to airlines, airports and the whole value chain,” he said, pointing out that this could also enable the governments to avoid an oversubsidy situation should incentives be on the card.

Meanwhile, responding to a participant’s question on potential consolidation within the aviation industry in Malaysia, Sobie said he believed that even before the Covid-19 outbreak, such an exercise would have taken place due to the overcapacity, irrational competition and loss-making airlines situation.

However, he said, this crisis would not create any emergency acquisition in Malaysia or anywhere else as everybody is focused merely on their own issues, potential government support and others.

“The issue is a lot of consolidation (in Malaysia) would be triggered by what Khazanah Nasional Bhd does, how they deal with the potential sale of Malaysia Airlines. There are many proposals from airlines (local and overseas) as well as non-airlines.

“When they (Khazanah) are ready to restart, they have to look at who is still interested as the market is always changing, and look at the holistic strategy.

“I don’t think it will restart necessarily very quickly, they have to look at other options in the bigger picture,” he said.

On recovery, Sobie pointed out that Malaysia is more fortunate than some other countries in having a very strong domestic market, which could provide strength for Malaysia to rebound with less contribution from the international inbound market.

Although AirAsia and Malindo Air have resumed their domestic operations this week, the market would not see any significant number as concerns on safety and health remain, he said.

“Like China, for an example, the recovery started in March domestically but (demand) is still down 70%.

“So we are likely to see a very slow recovery in the (airlines’) domestic market and even international (is) taking longer, maybe (they can) start resumption in the fourth quarter of this year but the pick-up will not (happen) next year for international,” he elaborated.

He anticipated the international market to start to recover in 2022 or 2023.

In 2019, Malaysian carriers transported 64 million passengers, comprising 27.8 million domestic passengers and 36 million international passengers to/from Malaysia. with the balance of a few hundred thousand carried on fifth freedom routes.

AirAsia/AirAsia X controlled 64% of the market, while Malaysia Airlines Bhd captured 25% and Malindo Air 11%. — Bernama

Source by Bernama