AFTER more than a year of struggle, airlines in Asia-Pacific are finally seeing some light at the end of the tunnel as countries like Malaysia begin opening up and creating selected tourist destinations as travel bubbles to revive the tourism industry.

Embattled airlines such as Philippine Airlines Inc (PAL) and Garuda Indonesia are also making headway with their restructuring efforts to ensure they keep flying and remain ready when international borders reopen. PAL recently received an initial US$20 million (RM83.8 million) lifeline from its majority shareholder after filing for Chapter 11 bankruptcy. And according to aviation data provider Cirium, Garuda Indonesia may launch a UK scheme of arrangement as part of a restructuring of the national carrier’s aircraft lease arrangements and potentially its other debts.

Last month, Thai Airways International pcl posted a net profit of THB11.1 billion (RM1.4 billion) for the first half of this year — its first profit since Covid-19 hit — following a US$12.9 billion debt restructuring, while AirAsia X Bhd is reportedly aiming to convene meetings with its lessors to vote on a RM64 billion restructuring scheme by the end of October.

Shukor Yusof, founder of aviation consultancy Endau Analytics, notes that while airlines will continue to have a tough time with the pandemic, he no longer sees any airlines collapsing. “Take Garuda. There is no doubt the carrier is in trouble but eventually, the [Indonesian] government will find ways and means to prop it up.

“The same goes for Thai Airways. There is no danger whatsoever of these national carriers [not] being resuscitated.”

Loss-making Malaysia Airlines Bhd was one of the first airlines in the region to successfully restructure its RM15 billion debt and receive a RM3.6 billion capital commitment from its shareholder in March.

“In this part of the world, discount carriers are doing much better than national airlines, primarily because they have to survive and there is little room for error,” says Shukor.

The share price of Singapore Airlines Ltd (SIA) is up 16% so far this year, while those of Japan Airlines Co Ltd and Qantas Airways Ltd have risen 28% and 11% respectively during the same period. AirAsia Group Bhd’s share price had gained 7% year to date to close at 92 sen last Tuesday.

Still, investors may want to wait before they jump in to buy airline stocks as the fundamentals are not there to support their valuations, according to Shukor. “It [recovery] is now all based on perception. It is not for retail investors because the industry is [still] fraught with too many unknowns,” he tells The Edge.

Association of Asia-Pacific Airlines (AAPA) director-general Subhas Menon says a meaningful recovery in regional air travel is not expected until the beginning of next year when the Covid-19 vaccination rate picks up. He expects inter-regional traffic to pick up first before intra-regional travel recovers, mainly because vaccination levels in Asia-Pacific remain low.

“It is very difficult to imagine recovery going beyond what it is already today before the end of the year. This is mainly because the vaccination levels are still lagging. We would see recovery in some places where vaccination levels have picked up — they are able to restart aviation and travel. With quarantine-free travel, we might see a pickup but more likely to be inter-region because some places in the West are already open to travel to vaccinated travellers from Asia-Pacific,” he said at the AAPA media roundtable recently.

“The prospect of the whole airline industry is what it is. Airlines are not doing very well financially mainly because of border closures, government regulations and efforts to curb Covid-19. That determines what the prospects of the airline industry are, whether you are a newcomer or an existing airline.

“It is a critical juncture for the Asia-Pacific airline industry. Twenty months is a very long time for us to be in hibernation. But we want to use the remaining time of hibernation to put plans into motion so that when we restart, we do so with a strong momentum to sustain the restart as well as to move into full recovery in the course of the next few years.”

More airline mergers on the cards?

The merger between Korean Air and its former rival Asiana Airlines continues to move forward following the approval of its post-merger integration plan by Korea Development Bank. It was reported that the integration is expected to be completed in 2024.

And recent news of Wizz Air’s failed bid for European low-cost rival easyJet has brought attention again to airline consolidation.

However, Shukor does not see the list of airline mergers growing under current climate conditions as there is no clear indicator of a return to normalcy anytime soon. “Travel bubbles are complicated as we can’t reduce a group of people or a community into a single unit as if there aren’t going to be any issues. Bubbles aren’t bound together by economics or national unity. It’s meant mostly for the affluent and so will produce a hierarchical imbalance where a few will have more mobility than the vast majority,” he says.

When contacted, Subhas tells The Edge that airline restructuring is apace in the industry in view of the pandemic. “There is no one solution but rather airlines are looking for the best way to stay afloat and survive the crisis. Some have shored up liquidity with the help of shareholders, while others have sought agreements with their creditors to stem the cash burn.

“Travel bubbles have so far failed to take off because governments are pursuing different strategies (for example, Singapore and Hong Kong) or the inclination to stop the bubble as soon as there is a spike in cases. To the travellers, this is very uncertain and patchy.

“What is needed is intergovernmental agreement on common policy, protocols and practices for air travel. The way forward is for the world to come together to forge a consensus and open up travel corridors based on progressive thresholds like vaccination levels among residents.”

Tunku Datuk Seri Iskandar Tunku Abdullah, group executive chairman of Melewar Group, says travel bubbles such as Langkawi’s “sandbox” programme will enable the country to plan for other destinations to open up — first to domestic tourists and then to regional and international tourists. “We have to restart travel at some point in time and with travel bubbles, there will be protocols established to ensure that precautions are taken to minimise the possibility of a spike [in cases] resulting from travel happening [through] the bubble’s standard operating procedures.”

In a Sept 16 report, CGS-CIMB Research aviation analyst Raymond Yap notes that the outlook for the aviation industry is looking brighter, reiterating his “overweight” stance on the Malaysian aviation sector. “Airlines like AirAsia will benefit, although in the initial phase, it may have to contend with strong competition, low fares, uneven loads on outbound and inbound flights, and the presence of passengers using their credits from previously cancelled flights,” he says.

However, he is maintaining a “reduce” call on AirAsia with a target price of 23 sen, noting that the Covid-19 Delta variant may keep international borders closed, even though domestic travel in Malaysia could resume by 4Q2021.

AirAsia’s cash balance fell from RM533 million at end-2020 to RM448 million at end-March 2021, and down further to RM236 million at the end of June.