“Unsurprisingly, airlines in Hong Kong and Macau are most immediately impacted by China’s struggles with coronavirus. Hong Kong’s airport has lost nearly 70 percent of its daily flights and is mothballing a concourse. Cathay Pacific and low-cost Cathay Dragon, which had already seen up to a 45 percent loss of point-to-point traffic prior to the outbreak, have already cancelled more than half their combined flights through March. Hong Kong Airlines has cut its daily hub departures from 40 to 15. Air Macau has also cancelled the vast majority of its flights.”
Like many aviation professionals, I’ve experienced plenty of scary moments during my travels. A bomb squad rushing into an airport, security officers yelling “freeze!” after a suspected security breach, evacuating from a 30-story hotel in the middle of the night … the stories are endless. My personal favorite is the “police escort” I was given after pipe bombs exploded in Dhaka: a hotel van armed with a half-asleep, baton-wielding policeman in the front seat – and a dot-matrix-printed “POLICE” sign in the windshield.
But none of these prepared me for the 12 surreal days I spent in Singapore this month. I arrived on February 9 for the Singapore Airshow, an opportunity for aircraft manufacturers and suppliers to demonstrate their latest and greatest wares to prospective Asian customers. The following week, I had been scheduled to speak at an aviation conference, which has since been postponed until June.
I knew about the region’s growing concerns over coronavirus, but wanted to save money on travel, so I waited until four days before departure to book a fully non-refundable hotel room. That turned out to be just one day before I received word that the conference had been postponed. However, my extended stay came with a silver lining: a unique window onto a panic that isn’t well understood outside of Asia – and is increasingly likely to wreak havoc on airlines far beyond the region.
Lower-than-expected airshow turnout was just the beginning
Even before the airshow started, it was obvious that business would be softer than usual as headlines about various companies reducing or even withdrawing their delegations accumulated. At first this was limited to Chinese companies, which was hardly surprising, but then some European and North American firms began pulling out as well. By day two, journalists and airshow regulars were commenting on the sheer quiet at the Changi Exhibition Centre. On day four, the exhibit floor was a virtual ghost town.
Although Singapore’s airshow isn’t usually as big as its peers in Paris or Farnborough, it’s normally good for the unveiling of a few hundred airplane sales. This year, the biggest deal announced was for three turboprops to be delivered in Papua New Guinea. The airplane ramp just outside was less than half-full; at the last airshow in 2018, every parking spot was filled by aircraft. Some unused exhibitor booths were covered with decorated stands, while others just sat abandoned like a form of modern blight. Each day’s aerial displays were viewed by just a few dozen spectators, and there were no queues for static airplane displays that would normally be quite popular.
Constant announcements on the public-address system encouraged guests not to shake hands but rather use "alternative greetings" such as bowing, waving, or placing one's hand over one's heart. Many attendees from outside the region openly laughed about the awkwardness while shaking hands; others resorted to fist or elbow bumps, greetings one might normally expect from teenagers. Surgical masks, which had been out of stock for weeks at pharmacies as far away as New Zealand, were in short supply here too. Boeing staff were shocked to find their entire order of hand sanitizer stolen, while model airplanes and other corporate swag were left untouched.
Empty streets and restaurants; locals unsure whether to worry or laugh
Outside the airshow, the normally bustling city-state of Singapore took on an eerie quiet that felt like the slowest of public holidays rather than a normal workday. Its scenes weren’t as dramatic as those in Wuhan or Shanghai, but it was clear that the city was running much closer to idle than full speed. Nearly every public event had been cancelled, millions of workers were told to stay home or work remotely, and tourism seemed to have dried up.
The Singapore Tourism Board estimates that full-year 2020 visitor arrivals will be down 25-30% vs. last year, worse than the 2002-03 SARS outbreak. Local businesses are already reporting revenue drops of 50 percent. Outbound travel is also likely to drop; one source in Singapore's banking sector confirmed that her company’s mid-March regional offsite in Thailand had been cancelled due to virus fears.
From a hotel overlooking ritzy Marina Bay, city streets were conspicuously empty even at what should have been rush hour. Every evening, green LED signs atop taxis made it clear that Singaporean cabbies were desperate for fares. Top attractions had no queues, restaurant staff laughed when asked whether reservations were needed, and the lobbies of major hotels were noticeably hushed.
One enjoyable side story to the crisis was a citywide shortage of condoms; buyers were allegedly using them for "protection" while pushing elevator buttons. Local friends laughed-slash-moaned about the pointlessness of wearing surgical masks that offered little to no protection, if they could be found at all. Social media memes abounded; an especially popular (if politically incorrect) comedic bit was a send-up of the famous “First they came…” poem.
Singaporeans were clearly caught between enjoying humorous aspects of the crisis and embarrassment at their countrymen's panicked clearing of supermarket shelves and absurd mark-ups of constrained goods on a local auction website. One lamented, “Have we completely forgotten our sense of collectivism?” Each day’s edition of The Straits Times, Singapore’s newspaper of record, brought new pleas for reasoned behavior from citizens and assurances from the government that it was rapidly sourcing new supplies.
SARS memories compounded by China economic worries
One might be forgiven for wondering: Where does the coronavirus crisis go from here? Industry polymath Courtney Miller made a convincing case in The Air Current that a recovery is likely within 12 months, based on demand patterns before and after the 2002-2003 SARS outbreak. Miller’s data shows that travel between the US and China fell more than 80 percent at the peak of the crisis, but the outbreak was contained within four months and demand returned to normal levels within six months thereafter.
What’s different this time, however, is that the outbreak and resulting fall in travel demand occurred during the heart of Chinese New Year, an event that is usually responsible for an outsized portion of airline profitability for many airlines across Asia. This would be analogous to a sudden pullback in US travel just before Thanksgiving, or a European crisis during the Christmas peak. For cash-strapped carriers, it may be a blow that pushes them to the brink of bankruptcy.
Adding kerosene to the coronavirus fire are the balance sheets of smaller airlines in China. Many are joint ventures of debt-ridden Chinese conglomerates and similarly over-extended local governments. As of this writing, Hainan’s provincial government is reportedly poised to seize the assets of HNA Group, which controls 11 airlines in China and has stakes in seven more elsewhere. Sources tell Bloomberg the group’s airline assets will likely be sold to state-owned Air China, China Eastern, and China Southern.
Coronavirus affects reverberate far beyond China
Unsurprisingly, airlines in Hong Kong and Macau are most immediately impacted by China’s struggles with coronavirus. Hong Kong’s airport has lost nearly 70 percent of its daily flights and is mothballing a concourse. Cathay Pacific and low-cost Cathay Dragon, which had already seen up to a 45 percent loss of point-to-point traffic prior to the outbreak, have already cancelled more than half their combined flights through March. Hong Kong Airlines has cut its daily hub departures from 40 to 15. Air Macau has also cancelled the vast majority of its flights.
A capacity analysis by FlightGlobal revealed that low-cost carriers as far afield as Singapore and Malaysia operate 40 percent or more of their available seat-kilometers (ASKs) to mainland China. Even EgyptAir, Ethiopian Airlines, and Russia’s NordStar Airlines have double-digit ASK exposure.
I asked to meet with two Singapore-based airlines in hopes of writing a separate article about their situations. Singapore Airlines would only accept questions by email, and low-cost subsidiary Scoot declined my interview request. Their reluctance was understandable; Singapore Airlines announced a significant long-haul capacity reduction this week, the magnitude of which it would not reveal to Reuters.
This week, the panic began to affect services not touching China. Japan Air Lines announced that it would drastically reduce service to South Korea and Taiwan. Seoul-based Asiana said it would halt flights to Taiwan and reduce frequency to most destinations in Southeast Asia. Early this month, the New York Times reported that American travellers to non-China destinations in Asia were reconsidering their plans, and that call centers for airlines like Asiana and Singapore were seeing spikes in cancellation requests.
Is this combination of events the beginning of a global downturn for the industry? It might be too soon to say – but the mood on the ground in Singapore this month does not bode well for Asian airlines, nor for airlines heavily invested in long-haul service to the region.
About our guest author, Judson Rollins
Judson Rollins is the managing partner of Propel Aviation Solutions, an airline consultancy focused on revenue management, network planning, fleet planning, and ancillary product strategy. He has worked with nearly 20 airlines and two aircraft manufacturers spanning four continents.
Judson is also affiliated with Seattle-based Leeham Company, where he analyses aircraft markets and provides advisory opinions to manufacturers, suppliers, and investors. He is a frequent contributor to media outlets throughout Asia and North America. You can connect with him on LinkedIn or follow him at @SkyWriterAv.