The Covid-19 pandemic has had an enormous impact on the aviation industry, affecting passenger traffic, air cargo demand, the workforce and funding, and has put many airport construction projects on hold. The pandemic has had an immediate and dramatic impact on airport traffic and revenue as well. It has significantly reduced passenger traffic worldwide, which has led to the loss of both aeronautical as well as non-aeronautical revenues.

Impact on airport projects

Covid-19 has delayed the commissioning test of operation readiness and opening of service, known as Operation Readiness and Airport Transfer (ORAT), for the satellite passenger terminal at Suvarnabhumi airport, Thailand. The commissioning test of various operating systems such as the automated people mover, baggage handling system and aircraft parking management system is now expected to be completed in April 2022.

The Ministry of Transport, Singapore, has announced that the construction of Terminal 5 at Changi airport, which is a critical long-term infrastructure investment for the future of Singapore’s economy, will be suspended for at least two years. This is to allow a reassessment of air traffic demand projections, and for studies (such as how air travel processes might evolve in a post-pandemic world and what implications it may have for the future design of a terminal) to be undertaken.

Besides, the maintenance, repair and overhaul (MRO) work at the U-Tapao International Airport expansion project has got delayed due to the pandemic. The MRO hub is part of the Eastern Airport City Project at U-Tapao airport, also known as an “aerotropolis”. Phase 1 of the project is expected to be completed in 2024 and the cabinet has approved the selection of BBS Joint Venture for the public-private partnership under the project, as well as the delegation of authority to the Eastern Economic Corridor Office of Thailand to enter into the agreement with the private party.

The Wattay International Airport expansion project at Laos is also planning to conduct demand forecast for the next 20-30 years taking into account the Covid-19 impact to develop the medium to long-term expansion and improvement plan for the airport.

Funding issues

The Covid-19 pandemic has had a dramatic impact on the aviation sector, since the ability of airport developers to maintain revenues has increasingly become a challenge. Airport developers now face a severe financial risk, which is expected to threaten their solvency, debt and liquidity.

In Indonesia, aviation authorities have been unable to finalise tenders in 2020 because of the Covid-19 pandemic. The PT Cinta Airport Flores (CAF) consortium, the winner of the Komodo airport PPP project in Labuan Bajo, East Nusa Tenggara, worth IDR 1.2 trillion, is struggling to fund the project. The tender for the Hang Nadim airport PPP project in Batam has still to be finalised because of the disruptions caused by the pandemic. Besides, a $2 billion project to expand the Philippine capital’s airport is on the verge of collapse, prompting calls for the government to reconsider its policy of not offering financial backing for large construction projects.

Passenger traffic and revenues

Similarly, the pandemic has resulted in a decline in air passenger traffic in Vietnam, Cambodia, the Philippines and Thailand by 34 per cent, 34 per cent, 36 per cent and 40 per cent respectively. The decline in passenger traffic and load factor has severely affected airlines’ revenues. This shortfall may have an effect on future expansion and procurement plans. According to IATA, passenger air transport, measured as revenue passenger km, was down 90 per cent year on year in April 2020 and 75 per cent in August 2020. The collapse of economic activity and trade has also affected freight, which was almost 30 per cent lower year on year in April, 2020 and about 12 per cent lower in August 2020.

Changi airport in Singapore has reported that in February and March 2020, airport passenger traffic plunged 33 per cent and 71 per cent, respectively, compared to a year ago, with concession revenue declining 58 per cent, year on year, for the two months. The company ended financial year 2019-20 with a marginally lower net operating revenue of SGD 2.6 billion with 62.9 million passenger movements for the year. Similarly, the total number of passengers passing through airports in Thailand between October 2019 and May 2020 nosedived by 33.94 per cent over the previous period to 64.2 million. In financial terms, airports in Thailand recorded a total revenue of THB 28,898.11 million in the six months from October 1, 2019 to March 31, 2020, of which THB 27,476.8 million was from sales or services, and THB 1,421.31 million from other income. Expenses in the period were THB 15,173.34 million plus income tax of THB 2,760.98 million, resulting in a profit of THB 10,963.8 million in the period.

In Vietnam, during the second quarter of 2020, VietJet Air opened 52 domestic air routes, provided 14,000 flights and carried 2 million passengers after the first epidemic outbreak was controlled. However, revenue from air transport at the end of the period was VND 1.97 trillion only, a sharp fall of 54 per cent compared with the same period in the previous year and it took a loss of VND 1.122 trillion. Vietnam Airlines earned a revenue of VND 25 trillion in the first half of 2020 and took a loss of VND 6.5 trillion. Pacific Airlines predicted that output and revenue in the year 2020 would decrease by 64 per cent and that it is expected take a loss of VND 1.2 trillion.

At Soekarno-Hatta Airport, which is the largest airport in Indonesia, the number of passengers during October 2020 has been recorded at 1.25 million, an increase of 20 per cent from September 2020. Besides, the number of flights increased by 12 per cent to 15,537 flights.

Conclusion

Airlines are a labour-intensive industry; so layoff policies, wage reductions, leave-without-pay measures and golden handshakes are common and quick-win strategies employed by firms to maintain liquidity. Singapore Airlines recently decided to cut more than 4,000 workers across subsidiaries, while, the Lion Air Group terminated over 2,000 employees. The cost- and job-cutting strategies have an adverse impact on local economies. The pandemic has affected the tourism industry severely as the number of tourist arrivals at the Suvarnabhumi International Airport, Thailand, declined steeply by 45.2 per cent by the end of February 2020 compared to the same period in the previous year.

Several steps have been taken by Southeast Asian countries to mitigate the impact of the crisis. Singapore has been using a combination of Regulated Asset Based and the Asian Development Fund to fund its airport development. The biggest shareholder of Thai airways, Thai Ministry of Finance, plans to reduce its shareholding, perhaps allowing Thai Airways to shed its state enterprise status. Similarly, the pandemic has forced Malaysia Airlines to choose between going bankrupt and abandoning its flag carrier status, or being acquired by another airline. For this unplanned situation, airlines will need to have a safety net option to safeguard some of their investments. Although an expected reduction in the fuel bill of up to $28 billion in 2020 due to a significant decline in oil prices in Singapore since the beginning of the year will provide some relief, it will not help offset significantly the devastating impact of Covid-19 on the industry. Thus, the recovery of the aviation industry will depend on financial support from the government (including in the form of tax incentives), financial institutions and investors.