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Local airlines feel the pressure as new COVID variant dents demand

By Arjay L. Balinbin, Senior Reporter

THE new strain of the coronavirus disease 2019 (COVID-19) will likely place renewed pressure on the finances of airlines, as countries reimpose lockdowns and travel bans, analysts said.

“The new strain is still apparently being studied by the authorities. However, drastic measures have already been taken. Countries are closing their doors again. The Philippines has banned flights to and from 21 countries, most of which are the densest air sectors of the airlines. It will definitely aggravate the already dire situation of the airlines,” Avelino D.L. Zapanta, a Philippine aviation industry expert, said in an e-mail interview on Monday.

The Health department has maintained that the new COVID-19 strain has not yet been detected in the Philippines. This even as Hong Kong authorities reported that a 30-year-old female resident who arrived from the Philippines on Dec. 22 tested positive for the new coronavirus strain.

The Philippines has so far banned the entry of residents from 21 countries, including the United Kingdom, United States, Japan, Germany and Canada, where the more infectious variant of COVID-19 has been detected. The travel ban will be expanded to residents from six more countries — Portugal, India, Finland, Norway, Jordan, and Brazil — starting Friday (Jan. 8) until Jan. 15.

Demand for air travel is expected to continue to slump, without the wide availability of a COVID-19 vaccine.

Mr. Zapanta said PAL and Cebu Pacific will incur more losses “because of their huge exposure in their leased aircraft.”

“They will continue to suffer in huge payables for which they have no corresponding means for traffic and revenue generation. Both, I believe, are in their fourth year of continuing huge losses. I don’t know how long they would last,” he said.

“We still have to see how the vaccines would alleviate the situation. In our case in the Philippines, it is said the vaccine might be acquired by the second quarter yet, at the earliest. You can count the whole year out with this development,” Mr. Zapanta said.

Japhet Louis O. Tantiangco, a senior research analyst at Philstocks Financial, Inc., said the airline industry will continue to see a dismal year.

“The airline industry is still operating below full capacity, so operations this year could remain dismal. Financial results this year could remain dismal,” he said in a phone interview on Wednesday.

Amid the crisis, he said listed airlines will have to keep their balance sheets stable and meet their debt obligations.

“The global economy is still trying to recover. With that, there is not much disposable income in the pockets of consumers — and because of that, we may not see much traveling even if the COVID-19 is already solved. I mean the damage has already been done to the global economy. With that, we may not be seeing much traveling for leisure purposes, and, of course, this is going to weigh on our airline companies,” Mr. Tantiangco said.

This year will be a roller-coaster ride for airlines, according to Astro C. del Castillo, managing director at First Grade Finance, Inc.

“However, the saving grace would be the cargo segment. It could pick up this year considering that most countries will be trying to manage the situation. Cargoes could pick up rather than passengers, but again, nevertheless, the expenses from COVID materials or paraphernalia that they need could continue to impact their profit margins,” he said in a phone interview on Wednesday.

Mr. Del Castillo said the airline industry could see consolidation in the long run, especially among international carriers.

“There is no right vaccine for the airline industry for this year,” Mr. Del Castillo noted, but they can stay afloat through refinancing and if they secure government help.

On whether banks would still be willing to provide loans to airline companies, he said: “Banks will consider them as high-risk business entities. But considering that they have already invested so much in terms of providing loans, they could think of a business model. It’s basically in the ball of the airline industry on what business models they can offer to the financing institutions, not to mention the government per se.”

“If they have a good game plan, of course, it will be supported by the government and the financial institutions. It’s difficult, kaya nga sabi natin bayanihan eh. Kapag nagsara ’yan, worst scenario, kapag nagsara ang airline industry, what will happen to us? At the end of the day, the government should still support them because who will fly the medical personnel from Luzon to Mindanao? Who will fly the goods? So it will really hurt the economy. I think the best choice really is to help the airline industry,” Mr. Del Castillo explained.

In November,  Finance Secretary Carlos G. Dominguez III said flag carrier PAL had informed his department about the company’s plans to seek court protection from its creditors.

PAL Holdings, Inc., the listed operator of the flag carrier, reported its net loss hit P28.85 billion in the first nine months of 2020, or more than three times the P8.49-billion loss recorded in the same period in 2019.

Meanwhile, Cebu Air, Inc., the listed operator of budget carrier Cebu Pacific, swung to a net loss of P14.69 billion during the January to September period, from the P6.77-billion profit it generated in the same period in 2019.

On Thursday, PAL Holdings shares closed 2.15% higher at P6.64 apiece while shares in Cebu Air closed 6.64% up at P49 apiece.

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