The impact of COVID-19 on Malaysia's airline industry

From travel restrictions to flight cancellations, the airline industry has been the hardest hit industry during the COVID-19 pandemic.

The impact of COVID-19 on airlines

Since the introduction of the Movement Control Order (MCO) on 18th March, airline companies nationwide have been forced to halt their operations and ground large parts of their fleets.

According to Transport Minister Datuk Seri Wee Ka Siong, Malaysia’s aviation industry is projected to lose RM13 billion this year as air travel continues to face travel restrictions.

This includes RM10.9 billion loss from Malaysia-based airlines — Malaysia Airlines Bhd, AirAsia Group Bhd and Malindo Airways Sdn Bhd, and another RM2.1 billion from airport operators including Malaysia Airports Holdings Bhd (MAHB) and Senai Airport Terminal Services Sdn Bhd.

In the July parliamentary session, Wee highlighted that cancelled flights from the three local carriers affected 4.316 million passengers, while another 1.211 million passengers postponed their flights.

Additionally, some 628,000 passengers were also given refunds worth RM399 million.

Malaysia Airlines, which from the beginning of the MCO has scaled down its operation, introduced salary cuts, and offered unpaid leaves to over 13,000 of its employees, is now undergoing an urgent restructuring exercise to ensure its survival.

Air Asia suffered a record-breaking net loss of RM992.89 million in the second quarter that ended June 30 as compared to a net profit of RM17.34 million in the same quarter last year.

Its revenue plunged by 96 per cent quarter-on-quarter to RM118.96 million from RM2.92 billion previously.

Meanwhile, it’s affiliate, AirAsia X Bhd, recently announced that it has run out of money and needs to raise up to RM500 million to restart the airline.

Both companies have also confirmed the retrenchment of 10 per cent of their 24,000 employees.

What measures have they taken?

AirAsia Group Bhd said it has applied for bank loans in its operating countries through various means as it intends to raise RM2.4 billion to ease its tight cash flow.

It aims to source up to RM1 billion from financial institutions while raising the remaining RM1.4 billion from equity.

Air Asia X on the other hand is not only liquidating its Indonesia- based carrier but will go ahead with restructuring plans by wiping out RM63.5 billion worth of debt and slashing its share capital by 90 per cent in order to save its business.

Malaysia Airlines through its restructuring exercise has reached out to its lessors, creditors and key suppliers to agree to steep discounts to keep the carrier alive.

It has appealed for more funding from the country’s sovereign wealth fund Khazanah Nasional Bhd, the airliner’s owner.

However, its parent company, Malaysia Aviation Group, foresees the possibility of the carrier shutting down if the restructuring plans fail as Khazanah explored the option of channelling funds to low-cost carrier, Firefly, which could become the country's national airline.

A possibility of a merger between the airline companies were also discussed earlier this year.

However, such merger seems unlikely now as Khazanah Managing Director, Datuk Shahril Ridza Ridzuan was quoted to have said that a potential merger would be challenging, citing differing work culture and business models as reasons.

Government’s initiatives

The government is assisting the airline industry as much as other tourism-related industries when it introduced the 2020 Economic Stimulus Package.

Assistance are mainly in the form of waivers and deferments of payments.

For example, temporary deferment of monthly income tax instalment payments for six months (from April to September 2020) was granted for businesses in the tourism sector as well as temporary exemption from Human Resource Development Fund levies.

Through the stimulus packages, RM500 million is also allocated to provide a temporary 15 per cent discount, for the same period, on electricity bills to those in the tourism sector, including airlines.

MAHB was also given rebates on rental of premises at airports as well as landing and parking charges.

The government, however, was clear on its stand on giving financial assistance to bail out local carriers.

Finance Minister Tengku Zafrul bin Tengku Abdul Aziz has said that government will not provide financial support to Malaysia Airlines and that any aid was for Khazanah to address.

The government has also recently refuted a claim by media portal Nikkei that it has approved a RM1 billion loan by the Finance Ministry, disbursed by a group of local banks under the government's Danajamin Prihatin Guarantee Scheme (DPGS).