KUALA LUMPUR: Rebuilding airlines' operations (network and services) will require a significant financial commitment if carriers wish to minimise their dependency on government financial aid, according to aviation experts.
However, market observers said the aspiration might be too early as it is not within the airline's reach given the current circumstances to rebuilding its operations and making its core business commercially viable.
Airlines had requested governments' financial assistance to keep their operation afloat amid significant lower load factors due to weakening demand for air travel, forcing the majority of its asset underutilised, exacerbated by travel restrictions following the Covid-19 pandemic past 18 months.
Certain quarters believe airlines should also consider joint-venture or reinforcing their existing alliances to reduce operational costs.
International Civil Aviation Organisation (ICAO) air transport officer Rosida Ismail said access to a reliable and greater capital market would be one of the options that should be made available for airlines.
"Currently in Malaysia, airlines are required to maintain a majority Malaysian ownership (of 50 per cent plus one share), hence limiting the source of funds to majority domestic capital market," he told the New Straits Times (NST) recently.
Rosida said attracting foreign investors with minimum shares would be a challenge as it might deem unattractive.
"Situation may improve should a change in foreign ownership policy and market access (in terms airlines operating routes) is fully liberalised, provided our airlines are fully capable and ready to seize the benefits fully," she said.
Rosida said the industry's conventional dependency on state aid should be reduced significantly if not completely stopped to allow better airline management based on business best practices.
"Involvement of state governments in airlines should be based on policymaker and regulator, just like any other industry.
"This will also indirectly increase foreign investors' confidence in the integrity and competency level of our industry," she said.
Rosida said airlines should be given an option and opportunity to explore a bigger capital market to address their business and financial needs.
"Foreign investment may not be limited to only financial injection, but also exchange of knowledge and skills.
"Creating investors' confidence is something that both industry and government should start building from now on while recovering from Covid-19," she said.
Rosida said both government and industry might seize the chance to introduce better governance with a higher level of integrity and more transparent decision making processes.
"These will help with building a better strategic position for Malaysia's aviation industry amongst foreign capital markets," she added.
Cirium chief economist Peter Morris said that while costs have been reduced to some degree through not flying, airlines cannot reduce other expenses. The resulting losses of the scale seen would usually drive any business to bankruptcy.
He said the pandemic could be temporary, but the question for many governments has been - if they allow the airline to collapse, will those air services return, and can the infrastructure be rebuilt?
"Countries with better air infrastructure and airlines services have a definite competitive advantage in the current competitive world marketplace to attract tourists or business, or open up new markets," he told NST.
The data and analytics for travel and aviation provider said Singapore and Dubai were clear examples of small nations that have developed a first-class air infrastructure to make the nation's economy competitive.
"In this downturn, both of those countries have supported the aviation players with loans, loan guarantees or write-offs," said Morris.
Nonetheless, he said the potential loss of air services might be less about the regional flights among the local carriers.
"These may well be restored quickly by a combination of existing low-cost airlines, foreign carriers or startups, but with the long haul connections to Europe, China and Australia, among others.
"These are a key part of the Malaysian air hub, and if they are significantly reduced, then the whole hub becomes less competitive, and the economic impact of that hub shrinks accordingly," he cautioned.
However, he said airlines should be showing the government a realistic plan to profitability while identifying services that have consistently lost money, even before the crisis.
Winair AS founder and aviation consultant Hans Jørgen Elnæs said airlines that came through the pandemic without significant debt increase would be in pole position.
"I expect state aid to become less accessible for airlines in the future. This may lead to airlines going out of business, but also merger and acquisition (M&A) opportunities," he told NST.
Hans said airlines have long been defined as the pride for the country of origin, but this may change post-pandemic, at least for countries that are not dependent on their native airlines to secure domestic and international connectivity.
On a broader picture, he said the total economy and jobs linked to aviation included much more than just the airlines and a few like airports, hotel/travel industry who at a large extend dependent on airlines to transport their customers.
Frost & Sullivan aerospace and defence consultant Shantanu Gangakhedkar concurred that airlines always have and will continue to be a "costly" business to operate, citing that in the case of many low-cost airlines run on low margins.
"One of the ways for airlines to gain access to a stable and reputable capital market is by showcasing a parallel growth with the economic recovery, which can only be achieved by having the right strategy put in place to minimise operational cost while increasing revenue and demonstrating additional revenue streams that may have higher profit margins," he told NST.
Shantanu said airlines would also need to relook at how they can add other revenue streams such as by increasing cargo operations which will continue to grow and offer constant revenue for the airlines.
"The key is going to be diversification and digitisation. Digitisation could be a way for airlines to address certain costly operational inefficiencies and optimise resource allocation for higher yields."
He said airlines should also consider getting back to the drawing board and re-looking at their routes/destination to see if changes need to be made to adapt to the changes in the market.
On a long-term strategy, he said airlines could look at restructuring their fleet and rejig their order book to adapt to the changing needs of the passengers.
This includes having more of single long-range aisles than larger wide bodies, as the demand is expected to come more from domestic and point-to-point routes for the next few years.