FLIGHT GLOBAL – By Alfred Chua24 November 2020
IATA has warned that more airline consolidation in the Asia-Pacific region is “highly likely”, if circumstances remain dire for airlines amid closed borders and a slow restart to international travel.
At a regional briefing a day after its virtual annual general meeting, IATA regional vice president for Asia-Pacific Conrad Clifford says it was “clear” that airlines globally are “in dire straits”, where they have limited cash available.
Clifford was responding to a question from FlightGlobal about airline consolidation. He notes: “The opportunities to… make cash at the moment are very, very few and far between because all of the borders are closed. I think it’s highly likely that we will see more consolidation.”
Referencing the recent news of Korean Air acquiring its rival Asiana, Clifford says the move was a “good example of airlines getting together in a very difficult market, and ensuring their survival [and the] continuation of jobs and employment for their staff”.
Reiterating calls made by the trade body to reopen borders safely, Clifford adds: “If we can’t find a way to open borders effectively through testing, and if we have to wait for a vaccine, then we may well see more consolidations in this region.”
On whether further consolidations could take place among carriers of different countries, Clifford notes that this will vary from country to country, but is highly unlikely.
“We have had a number of airlines who’ve tried to set up regional operations, but they’ve tended to be challenged by the ownership control rules that apply in different countries with respect to [obtaining] air operator’s certificates, so I would think that cross border consolidation is probably going to be unlikely. But consolidation within countries? Yes, I would think that’s certainly a possibility,” he says.
Clifford also notes that the pandemic has also forced governments and regulators to change their approach to consolidation efforts.
“If you look at Korean Air and Asiana…a year ago, who would ever have thought that the Korean government could have remotely agreed to a merger between those two carriers? [But] that’s where we are today,” he told reporters.
“[It] reflects a realistic approach to the fact that airlines around the world are in very poor financial condition, and in many cases, that means that consolidation, mergers make a lot of sense,” Clifford adds.
His comments are a constrast to what Association of Asia Pacific Airlines head Subhas Menon said at a separate briefing a week earlier, where he said: ”[It is] difficult to see airlines pursuing mergers and acquisition at the moment, because I think they are focused on survival. They’re focused on making sure that they conserve cash and they are able to withstand this crisis.”
At the association’s annual general meeting, held virutally because of pandemic-related travel restrictions, IATA chief economist Brian Pearce warned of an uptick in airline failures in the coming years, amid piling debt and rapid cash burn.
It also flagged a $118.5 billion net loss for the global airline industry for 2020, some $34 billion deeper than a June projection. Among Asia-Pacific carriers, the combined net loss is forecast at close to $32 billion.
IATA estimates Asia-Pacific carriers to lose $7.5 billion in 2021 — the smallest loss of the three biggest regions — on the back of a positive outlook for cargo, and strong recovery in the Chinese domestic market.