Airlines see big drop in business

The aviation sector is among the worse hit in terms of business from the outbreak of the novel coronavirus (2019-nCoV) and this has forced airlines to seek ways to cushion the blows.

Airlines are restrategising in terms of their capacities and are also embarking on cost-cutting measures, at least until there are more clarity of the virus outbreak coming under control. And at least for the shorter term, they do not have to take too drastic measures with the lower Brent crude oil prices, which are currently trading below US$60 per barrel, coming in to offset some of the impact.

A spokesman from Malaysia Airlines said it has seen weak passenger demand across its network, especially to and from China.

The national carrier said it is proactively reducing capacity based on demand. As more and more countries are imposing travel restrictions, Malaysia Airlines has responded quickly to these changes. Similarly like any other companies impacted by this situation, we have initiated counter measures to manage our costs, ” the spokesman added.

A source from Malindo Air acknowledged that the public fears travelling at the moment and this has resulted in about a 20% drop in passengers.

The airline has also taken swift action to reduce its frequencies to the affected regions and shift its capacities to other regions.

“The management has been discussing on cost cutting measures and the tightening of loose and we’re more focused on that.

“All our processes are being reviewed and unnecessary expenditures are being put on hold.

“What we can do is to sail through the tide, do everything that we can within our control and move on, ” the source said, adding that while uncertainties still remain over the virus outbreak, the airline hoped the situation will improve by the first half of the year.

There was an internal Malindo memo which was leaked a few days ago, where cost cutting initiatives were ironed out, such as the suspension of recruitment, provision of shuttle bus services to minimise transportation claims and also the cutting down of travelling for meetings, where the usage of teleconferencing and emails were suggested instead.

Market sentiment on the aviation sector has been weak ever since the outbreak of new cases of 2019-nCoV continue to rise.

Even Brahim’s Holdings Bhd, whose main business is in-flight catering and related services, closed 1.92% or 0.5sen lower at 25.5sen.

Malaysia Tourist Guides Council president Jimmy Leong said Malaysia’s tourism industry is quite dependent on the Chinese market and he deemed the recent number of cancellations as a domino effect where people stop travelling and flying.

He anticipated more cancellations should the virus outbreak persisted.

The virus fears are affecting both the aviation and tourism industries with some 95% of tours that were planned between January and April being cancelled.

China forms the bulk of Malaysia’s foreign tourists at around 70%, followed by other significant contributing countries such as Japan, South Korea, Indonesia, the Philippines and Vietnam.

MIDF Research analyst Adam Mohamed Rahim said cost cutting measures would be necessary but not to an extent which is drastic.

“Capacity cuts are inevitable in such situations but nevertheless, redeploy them to routes which are less affected by the virus.

“If airlines are expecting a delivery of new fleet this year, it would be appropriate for them to delay the delivery and focus on utilising their current fleet.

Adam also said their channel checks showed that there were a number of no-shows for airlines in Malaysia due to the concerns over the 2019-nCoV.

UOB Research senior economist Julia Goh said a temporary dent on tourism-related sectors such as aviation, retail and F&B can be expected with travel restrictions imposed and the cautious sentiment as locals stay away from crowded public spaces.

“Measures taken by the affected industries are likely in view of sharply weaker demand amid travel cancellations or deferments.

“Our total tourism revenue accounts for 5.8% of the gross domestic product (GDP) and 15% of the tourist receipts come from China tourists which have become an important tailwind for tourism demand.

source: https://www.thestar.com.my/