BANGKOK: It has been more than a year since Captain Dejphon Poolpun last took to the skies.
The Thai Airways pilot has not received any flying allowance at all, while his basic salary was cut as the company suffered billions of losses.
The hiatus in flying has meant a complete change in his lifestyle. These days, he spends much of his time in the kitchen of his Bangkok home, where he bakes tray after tray of brownies for his online shop Flying Sweets. The business has found a sizable group of loyal customers.
“In the past year… I made more than US$3,000 a month,” he told CNA. “In one day, I could sell 300 brownies when the business was booming.”
Due to the pandemic, he lost 60 per cent of his salary as a pilot.
Capt Dejphon’s circumstances are not unique for those in the aviation industry. Across the region, many pilots and flight attendants have been laid off, while others are forced to take substantial pay cuts. Many had to supplement their income by selling food or other goods.
While Capt Dejphon is one of the success stories of how airline employees were able to adapt to the sudden downturn, there are those who had to sell their houses and cars to pay off their debts.
Meanwhile, airlines continue to suffer losses, forcing companies to downsize their fleet and employees and make drastic changes to their business strategies.
Thai Airways, for example, had to file a business reorganisation petition to the country’s Central Bankruptcy Court. Meanwhile, others like Malaysia Airlines and Garuda Indonesia have been engaged in negotiation processes with airplane leasing firms and creditors to restructure their loans.
For some, there might be light at the end of the tunnel. Buoyed by the strong domestic market, Garuda Indonesia has said that it might be on its way to make a profit this year while pilots working for the airline said that their workload and salaries are slowly returning to normal.
Meanwhile, Thailand is hoping to gradually reopen some parts of the country to foreign visitors in a bid to kickstart its tourism industry, one of the country’s main economic sectors.
But the path to recovery is still murky, said industry players and analysts interviewed by CNA. A new wave of COVID-19 infections could force governments to bring back travel restrictions, reduce customer confidence and derail plans to revive tourism.
The pandemic has caused a massive drop in the number of passengers worldwide and carriers from the region have not been spared.
In 2019, Garuda carried more than 15 million passengers. Last year, the figure fell to 2.8 million. As a result, the company recorded a net loss of US$1.07 billion.
It was a devastating blow for the Indonesian flag carrier, which in 2019 reaped a profit of US$122.4 million.
Because of the pandemic, Garuda decided to lay off 700 permanent employees and contract workers while 15,000 others were forced to take a pay cut of up to 50 per cent. Garuda also liquidated six of its subsidiaries in a bid to streamline the company.
“The ongoing pandemic … had compelled the company to create a number of adjustments,” Garuda CEO Irfan Setiaputra said in a statement on May 21. “We have to take these steps to survive in this uncertain time.”
In lieu of a bailout, the Indonesian government agreed to purchase US$600 million in newly issued bonds in November 2020, injecting fresh capital to the ailing company. At the time, Garuda already had negative net working capital and had liabilities exceeding 80 per cent of its assets.
Thai Airways encountered even bigger losses. Although the company managed to carry 5.87 million passengers last year, the figure was a 76 per cent drop from 2019. The dramatic loss in passengers was one of the reasons why Thai Airways recorded a net loss of US$4.5 billion.
The pandemic-induced financial woes forced Thai Airways to file a business reorganisation petition to the Central Bankruptcy Court in May last year. In its petition, the flag carrier declared its debt to be worth more than US$11.3 billion, as of March 31, which exceeded its assets.
Since the submission, the airline has implemented various measures to cut costs and increase revenue. These include downsizing headcount from 29,000 to between 14,000 and 15,000, reducing the number of aircraft in its fleet and asking employees to take leave without pay.
Meanwhile, according to the company’s financial statements, Thai Airways only had US$278 million in cash and cash equivalents at the end of 2020, compared to US$695 million the year before.
Bangkok-based aviation analyst Suwat Wattanapornprom of Asia Plus Securities said Thai Airways’ cash on hand might only be enough to last the company until early 2022. This, he said, could lead to a liquidity issue once the country decides to reopen international flights.
“By that time, when flights resume, Thai Airways may not have enough cash on hand for the set-up. This is because once it begins the rehabilitation, it will stop paying the creditors. But this also means the company would be required to complete cash transactions for everything when it flies to any country,” Suwat told CNA.
Malaysia Airlines might be facing an even trickier situation.
The company has been recording losses for a decade, made worse by the twin tragedies of MH370’s disappearance and the MH17 shoot-down in Ukraine in 2014. The Malaysian flag carrier was subsequently privatised and taken over by sovereign wealth fund Khazanah Nasional.
Even before the pandemic hit, Khazanah Nasional admitted that its attempt to turnaround Malaysia Airlines Berhad was not on track, in a report released by the parliament’s Public Accounts Committee, despite pouring in a total of US$1.5 billion.
When asked by CNA on how COVID-19 has affected passenger numbers, Malaysia Airlines said that these figures are confidential.
However, the Malaysian Aviation Commission (MAVCOM) publishes a quarterly Waypoint Report on the country’s aviation industry. In December 2020, MAVCOM noted that all Malaysian carriers, including MAS, saw their passenger traffic drop to nearly zero in the second quarter of last year. The total number of passengers up until the third quarter is less than 5 million.
As for losses, Malaysia Airlines has yet to file its 2020 financial statements with the Companies Commission of Malaysia. Its 2019 financials showed a revenue of RM9 billion but a net loss of RM923.79 million after tax.
The pandemic prompted the company to introduce extensive salary cuts for the entire management team and employees and no-pay leave as early as March 2020. Malaysia Airlines stated that despite the reduced demand of overall capacity, there have been no layoffs.
Captain Izham Ismail, the chief executive of Malaysia Airlines’ parent company Malaysia Aviation Group’s (MAG) told CNA in May that the airlines’ overall passenger and fleet capacity has been cut by 90 per cent since October 2020. He also said in May that he expected it to remain at that level for the next six months.
Some good news emerged in late January 2021 as MAG obtained approval from the High Court of England and Wales to convene a hearing with its creditors for a restructuring proposal.
This was later followed by the court’s clearance for MAG to move forward with the restructuring scheme, which will see MAG’s sole shareholder Khazanah Nasional pumping in RM3.6 billion to fund MAG until 2025
“THERE WERE TIMES WE WOULDN’T FLY FOR WEEKS”
A senior Garuda Indonesia pilot, Captain Muzaeni said 2020 was the worst year he had seen during his 32-year career with the company.
“Our basic salary was cut by 30 per cent,” the 54-year-old pilot, who like many Indonesians goes with one name, told CNA. “Meanwhile, I was barred from flying because the company considered senior pilots like myself to be more susceptible (to COVID-19) than younger pilots.”
The ban meant that he was not earning any flying allowances and bonuses, which he said can account to anywhere from one fifth to a half of what a flight crew makes each month.
But even younger pilots and flight attendants were suffering from reduced flight hours. “There were times when we wouldn’t fly for weeks,” he recounted.
Capt Muzaeni said he was fortunate that he still earned enough money to support his family. “I didn’t have any instalments or loans to pay but many of my peers did,” he said.
“There were many people who had to sell their cars or even sell their houses and have to move back to their parents’ houses just to get by. There were many people who had to start an online food business to supplement their income because they weren’t making enough money.”
He said the challenging condition lasted for a few months during the early days of the pandemic when the government imposed tight travel restrictions. But slowly, the travellers, especially those on domestic routes, returned after the restrictions were eased.
“By December our basic salaries were restored back to the way they were before the pandemic. Today, no one is forced to sell food or goods online anymore,” he said.
But pilots and flight attendants still face uncertainties regarding their flight time, which affects bonuses and allowances.
Between May 6 and May 17, the Indonesian government imposed a tight travel restriction to prevent millions of people in the predominantly Muslim nation from heading to their hometown to celebrate the major Islamic holiday Idul Fitri.
The restriction caused all Indonesian airlines to slash the number of flights by 90 per cent, according to figures from the Transportation Ministry.
“The condition is still unstable. No one knows for sure if or when these travel restrictions will be imposed again,” Capt Muzeni said.
And there have been measures by the company to cut down the number of employees.
In a statement issued on May 21, Garuda announced that it is offering an early retirement programme for volunteering employees.
The company’s CEO, Mr Setiaputra said in the statement that the early retirement programme is “the best solution that we can offer to employees in the midst of this pandemic situation.”
Meanwhile, Thai Airways has asked its employees to take leave without pay to help the company stay afloat. Capt Dejphon is one of the people who joined the programme.
“It can be 10 to 15 days, depending on what we want. Since the company’s situation isn’t so good, I try to take leave without pay as much as I can, which is about 10 days. So, in total more than half of my income is gone,” he said, adding that he only came to work for flight simulator trainings.
But Capt Dejphon said that he has something to look forward to. He is scheduled to fly again in October, when Thailand aims to reopen parts of the country for international tourism.
ROAD TO RECOVERY
Malaysia Airlines’ CEO told CNA that the company is embarking on a number of cost-cutting measures which include seeking payment deferrals and contract renegotiations.
“The group eventually embarked on a holistic restructuring of (Malaysia Airlines’) balance sheet and cost structure in September,” Capt Izham said.
This restructuring exercise, he said, helped reduce Malaysia Airlines’ RM15 billion (US$3.6 billion) worth of liabilities and eliminated RM10 billion in debt, along with RM5.7 billion in total cost savings and costs avoidance.
“RM510 million has been achieved in Q1 2021 in cost savings and aircraft deferrals, and MAG is targeting another RM1 billion by the end of the year” Capt Izham said.
In the meantime, as an alternative revenue stream, he said, Malaysia Airlines had started selling its Business Suite inflight products, from duvet sets, pyjamas and amenity kits, as well as the airline’s signature satay dish and salted peanuts.
The Malaysia Airlines CEO said the company is gearing up for a gradual recovery of its operations.
“We were planning to deploy more passenger and fleet capacity in the first half of 2021, to reach 30 per cent of 2019 levels, and 70 per cent by the second half,” he said.
Meanwhile in Thailand, the Central Bankruptcy Court is expected to issue a ruling on Jun 15 on Thai Airways’ rehabilitation plan. The company has said that the plan would enable the airline to generate profit once more by 2023.
“Under the preliminary rehabilitation plan, the company would return to profitability through the usual operations of its main business in 2023 and its shareholders’ equity would value more than zero in 2030,” said its acting president Chansin Treenuchagron in a letter to the president of the Stock Exchange of Thailand (SET) in March.
In the same letter, Mr Chansin said the company plans to restructure the company’s capital and debt, including an incentive for creditors to exchange debt for ownership of the company.
Thai Airways also plans to operate under a new vision, where it repositions itself as “a private high-quality full-service carrier with a strong Thai brand”.
Based on the company’s statement in March, this will include redesigning its product to deliver “a high-quality experience” at a lower cost and unbundling fares so that passengers can choose to pay for what they want, such as checked-in baggage and seat selections.
The airline also plans to optimise its routes by only flying to profitable destinations and restructure the organisation to an appropriate size. It expects to slash about 50 per cent of its workforce as well as change its leases and fleet.
Garuda Indonesia seems to be making a similar move. According to its September 2020 financial report, the airline was operating 210 aircraft in its fleet. The figure had been reduced to 142 recently as it returned some of its leased planes.
The airline is reportedly looking to slash down its fleet even more and reduce the number of airplanes to 70. The company has refused to comment on the reports.
With all these cost-cutting measures in place, Garuda has predicted that it will start to turn a profit by the end of the year.
In a letter to the Indonesian Stock Exchange in February, the company highlighted that the number of passengers had gone from an average of 150,000 passengers per month during the early days of the pandemic to around 1 million passengers a month towards the end of 2020.
Garuda hopes to carry around 7.5 million passengers this year – about half of what it carried before the pandemic – as the government gradually relaxes the country’s travel restrictions.
DARK CLOUDS PERSIST
In an April press release, the International Air Transport Association (IATA) said it expects net airline industry losses of US$47.7 billion in 2021, an improvement over the estimated net industry loss of US$126.4 billion in 2020. The association added that it expects the aviation industry to begin to recover in the latter part of this year.
Despite some hope for a modest recovery, those interviewed by CNA said many uncertainties remain.
Yeah Kim Leng, a professor of economics at Sunway University Business School, noted that there was now some easing of pandemic-related turbulence for the airline industry, as vaccines increased in availability and travel restrictions have been eased in varying degrees.
“However, dark clouds still persist due to virus resurgence and vaccine supply shortages, but the airline industry is seeing light at the end of the tunnel, although this might be longer compared to other industries hit by COVID-19,” Prof Yeah told CNA.
In the short term, the outlook for air travel in the ASEAN region, he said, seemed challenging due to quarantine measures, restricted or even closed borders.
“Given that the recovery in air travel is strongly tied to the relaxation of COVID-19 travel restrictions, the regional carriers will have to be financially prepared to face another year or two of operating losses,” Prof Yeah added.
Jakarta-based aviation analyst Alvin Lie added that airlines around the world have already done what they could to mitigate the decline in passengers and steep financial losses.
“Airlines have been cutting back on their resources and services, selecting only routes which make economic sense while branching out into other sectors like cargo. They have renegotiated their loans, tried to return leased planes, deferred payments to investors and some applied for government bailouts. They are now in a survival mode,” Mr Lie noted.
“The pandemic however meant that the condition is unstable. There could be more travel restrictions in the future. This has a very huge impact on an airline’s performance because some airlines depend on peak seasons like Chinese New Years and Idul Fitri, times when these travel restrictions are usually in place.”
Mr Lie believed that there is nothing more an airline could do at this stage adding that the onus is now on the governments to keep the pandemic under control.
“Governments only need to mitigate COVID-19 well and do so consistently. If they can manage the pandemic well, tourists will come. But in today’s condition, no matter how much promotion an airline does, no one will come,” he said.
COVID-19 have changed the way people travel, socialise and interact and Mr Lie believed that some of these changes are here to stay, even after the pandemic is over.
“People now realise that in some circumstances, we don’t need to meet face-to-face. We can do things quicker and more efficiently by meeting online without sacrificing quality and effectiveness,” he said.
“People will still travel. Humans are social creatures after all. They need to meet loved ones. They need to go on holiday. But for business travel, the pattern is changing and airlines have to be ready for these changes.”
Thai Airways’ Capt Dejphon said that he welcomes the potential changes in airlines culture and mindsets brought about by the pandemic.
“COVID-19 has brought a good opportunity,” he said. “It’s like performing surgery on a patient – operate on the organisation, remove the old system and have a fresh start.”