Asia's carriers have again been reporting mixed sets of financial results for last year. They are in agreement about one thing - the SARS crisis means this year is going to be a challenge, writes Nicholas Ionides in Singapore
Since the SARS virus spread from mainland China to Hong Kong and beyond in February and March, Asian carriers have been battered, some reporting unprecedented monthly drops in passenger traffic of more than 80%.
The effect was felt throughout the region virtually overnight and while there are signs that a slow recovery is beginning to take shape, with the World Health Organisation (WHO) recently lifting its travel advisory on Beijing, the majors are still in a pessimistic mood.
Singapore Airlines (SIA), reported a 22% drop in operating profit for its 2002/3 financial year to March. The carrier went on to forecast a loss for the June quarter, which would be the first in its history. "The outlook in the near- term is dismal," says SIA, warning investors that the impact of SARS on earnings "is likely to be substantial".
SIA was one of the first major airlines to cut flights across its network; withdraw aircraft from service; freeze unnecessary spending; and demand wage concessions from staff. They were moves that were quickly matched by most others in the region.
In March, Cathay Pacific Airways had been able to report solid profits for its 2002 calendar year, unaffected by SARS. But by April it was forced to take drastic cost-cutting action and also issued its first ever profits warning. It has talked about a long struggle to repair the financial damage, perhaps taking a year or two.
Pain for China
Across the border in mainland China - the epicentre of the SARS outbreak - major carriers have been taking a beating, and for May both China Eastern and China Southern Airlines reported massive passenger traffic declines of 82% and 84%, respectively.
There were already signs of weakness before SARS began affecting demand, as the pre-Iraq war downturn hit the region's airlines.
China Eastern swung to a loss in the March quarter, reporting that result soon after unveiling a sharp drop in profits for 2002. It then issued a warning that the SARS outbreak would have an impact on its financial position in the second quarter, and its board reversed an earlier decision to pay a dividend to shareholders for 2002 to preserve cash.
China Southern reported a 69% jump in net profit for the year 2002 on the back of healthy revenue gains as traffic grew at double-digit percentages, but this year is expected to be a disastrous.
The carrier's Guangdong Province base is believed to be the source of the SARS virus, and many people are still staying away, despite the fact that the WHO has now lifted its travel advisory on the province.
In Japan, SARS has failed to hit the country but the spread of the virus in other parts of Asia has badly affected Japan Airlines System and All Nippon Airways. Both were already seeing weakness in forward bookings ahead of the Iraq war.
Japan Airlines System, the parent company of Japan Airlines and Japan Air System, reported a modest net profit for its 2002/3 financial year to March, but warned that this coming fiscal year will be tough.
Reporting the worst net loss in its history for 2002/3, ANA had said that it expected this year to be profitable. But that forecast was made at the end of April, and it is unclear if the target is being maintained.
Elsewhere, Philippine Airlines returned to profitability for the year to March but missed its own internal forecasts. Net profit amounted to 286 million pesos ($5.4 million), compared with a net loss of more than 1.5 billion pesos the previous year. The airline said it was hurt during the year by weak bookings ahead of the start of the war in Iraq, while the SARS outbreak contributed to a loss in March.
Bright spot
One relatively bright spot came from Malaysia Airlines (MAS), which returned to the black on the back of revenue gains and a sweeping restructuring under which assets were sold to a government company and leased back to the airline. The state-owned carrier overturned last year's losses to return a profit for 2002/3 after five consecutive years in the red. But the positive results were overshadowed by a warning that "the financial impact of SARS on travel and commerce has been dramatic with no immediate end in sight". That makes a repeat of last year's performance unlikely.
In South Korea, both Korean Air (KAL) and Asiana Airlines suffered in the March quarter and recorded losses.
KAL suffered a net loss of 180 billion won ($151 million) for the first quarter, blaming higher fuel prices and poor exchange rates, and the impact of the Iraq war. Asiana blamed a net quarterly loss of 59.5 billion won on the fall-out from SARS. It also said that it expects to record a loss in the second quarter too, given that it relies heavily on flights to China for revenue and services have been slashed to that country.
Thai Airways reported a 44% increase in net profit for the first six months of its financial year to March, but has said that it lost heavily in April and the outlook for the time being is negative.
Early in June its president Kanok Abhiradee told local reporters that the carrier lost 1.9 billion baht ($46 million) in April as passenger demand plummeted. "The crisis is beyond our control and we have no idea as to when it will end," he said.
That is a view shared by many of the region's airline chief executives. While the SARS-induced downturn struck effectively overnight, it is likely to be many months before Asia's worst-affected carriers bounce back to health.
Source: Airline Business
