KUALA LUMPUR: Khazanah Nasional Bhd has reaffirmed its commitment to continue supporting Malaysia Airlines Bhd, via its parent company Malaysia Aviation Group Bhd.
A source from Khazanah said the support is deemed as ‘strategic needs’ of Malaysia to maintain air links amid the Covid-19 crisis.
“It is still uncertain at this point in time. However, we could not determine (quantify) on our assistance that will be extended to the national carrier,” he told the New Straits Times on condition of anonymity as the matter discussed was confidential.
Airline is an important mode of transportation for tourism with a multiplier effects to the local economy, contributing the third largest in gross domestic product (GDP).
“Strong air connectivity fuels the country’s economic growth, enabling it to attract business investment and human capital, while boosting tourism sector,” another source said.
Malaysia’s economy was boosted with a total of RM84.1 billion in tourist receipts backed by expenditure from 25.83 million of international tourists who visited Malaysia throughout 2018, according to Tourism Malaysia data.
For the first nine-month of 2019, international tourist arrivals increased 3.7 per cent year-on-year (YoY) to 20.1 million and tourist expenditure increased 6.9 per cent to RM66.14 billion.
Government’s financial assistance is essential to keep carriers airborne amid the current crisis as air travel demand weakens drastically.
To cope with the tough conditions, local airlines recently initiated cost cutting measures including voluntary unpaid leave as well as top management’ salaries cut and abolishment of allowances.
International Air Transport Association (IATA) said local airline industry could wipe out about US$3.32 billion (RM14.46 billion) in revenue and US$3.80 billion (RM16.55 billion) in potential GDP contribution to Malaysia’s economy this year.
IATA cautioned that the losses would likely be incurred if the government did not financially support the local airline sector, impacted by the Covid-19 crisis.
IATA, which represents about 290 airlines comprising 82 per cent of global air traffic, said the airline industry’s cash position could deteriorate by US$61 billion (RM265.73 billion) in the second quarter (Q2) this year without relief.
It added that Malaysia’s air passenger demand could also be reduced by 39 per cent or 25.49 million passengers for 2020, while a total of 169,700 jobs might potentially be at stake.
In its latest analysis, IATA revealed that the repercussion was based on a scenario in which severe travel restrictions last for three months, followed by gradual recovery.
IATA Asia Pacific regional vice president Conrad Clifford said the region as a whole will see passenger demand reduced by 37 per cent this year, with a total of revenue loss of US$88 billion (RM383.35 billion).
“While each country will see varying impact on passenger demand, the net result is the same – their airlines are fighting for survival, they are facing a liquidity crisis, and they will need financial relief urgently to sustain their businesses through this volatile situation,” he said in a statement on Friday.
He said major Asia Pacific countries could see passenger demand likely reduce between 34 per cent and 44 per cent this year.
“Cambodia (34 per cent) and Vietnam (34 per cent) and the Philippines (36 per cent) will be on the lower end of the range, while Thailand (40 per cent), Pakistan (40 per cent), Republic of Korea (40 per cent) and Sri Lanka (44 per cent) will see the largest impact,” he added.
IATA also predicted that global airlines to post a net loss of US$39 billion (RM169.89 billion) in the Q2 ending June 30, 2020.
The association said the cash burn impact will be amplified by a US$35 billion (RM152.47 billion) liability for potential ticket refunds.
To date, Australia, New Zealand and Singapore had announced a substantial package of measures to support their aviation industry.
“But others in the region, including India, Indonesia, Japan, Malaysia, the Philippines, Republic of Korea, Sri Lanka and Thailand, have yet to take decisive and effective action. Jobs as well as the GDP supported by the industry are at risk,” said Clifford.
Clifford said governments need to ensure that airlines have sufficient cash flow to tide them over this period, by providing direct financial support, facilitating loans, loan guarantees, and support for the corporate bond market.
“Taxes, levies, and airport and aeronautical charges for the industry should also be fully or partially waived,” said Clifford.
He said it was critical for countries to have a viable aviation sector to support the economic recovery, connect manufacturing hubs and support tourism when the covid-19 crisis is over.
“They need to act now – and urgently - before it is too late,” urged Clifford.
Malaysia Airports Holdings Bhd (MAHB) handled 105.2 million passengers throughout its network of local airports in 2019, recording a 6.1 per cent growth.
The airport operator said international passenger movements grew 3.0 per cent with 53.3 million passenger movements, while the domestic passenger movements grew 9.5 per cent to 51.9 million passengers.
The Malaysian Aviation Commission (Mavcom) had also revised downward its forecast for Malaysia’s passenger traffic with a contraction of between 36.2 per cent and 38.1 per cent to 67.7 million and 69.7 million passengers this year.
This was a considerable decrease from 2019’s all-time high of 109.2 million passenger, according to Mavcom’s sixth edition of Industry Report, Waypoint, which lays out outlook for the industry in 2020.
The commission said the revised forecast was due to existing flight cancellations by both Malaysian and foreign carriers totalling 14.0 million seats between January and December 2020, and seat reductions of 15 per cent for domestic routes and 20 per cent for international routes.
As of March 26, 2020, Mavcom said 7.3 million seats had been cancelled, representing 8.6 per cent of total seat capacity for Malaysian carriers in 2020.
Foreign carriers operating to and from Malaysia had also reduced seat capacity by 6.7 million (24.5 per cent of total seat capacity for foreign carriers) in 2020.