David Yu is a finance professor at New York University Shanghai who specializes in cross-border financing and aviation finance and leasing. His new book, “Aircraft Valuation and Leasing,” is out in October.
When Hong Kong-based airline Cathay Pacific Airways suspended its shares from trading last week ahead of an announcement, investors and the broader airline industry wondered whether there was good news to come — or, following the post-coronavirus aviation collapse, bad.
It was good: the Hong Kong government would lead a $5 billion recapitalization of the airline. Cathay’s passenger capacity had fallen 97% and its actual numbers more severely, thanks to COVID-19. Even a well-run airline cannot sustain this drastic disruption to their business models for a long period given the cost structure needed to operate.
This urgent need for a bailout shows that the Asian aviation market has not yet made the rosy, sustainable bounceback from the abyss that some in the market have suggested. In fact, there is a long way to go yet.
The sector is exhibiting two dramatically diverging results, with domestic flight activity inspiring optimism and the prospects for international flights, pessimism.
Domestic flights within the bigger economies have shown some robustness in scheduled activity compared to the 2019 average. The number of scheduled domestic flights in China and South Korea is off 12% as of June 8, according to flight tracking data provider OAG, while Indonesia and Japan are off 24% and 33%.
Unfortunately, most airlines are not domestic-oriented, and those with a larger percentage of international flights, such as Cathay Pacific and its rival Singapore Airlines, have yet to see any significant bounceback. International flights remain around 14% of pre-COVID figures.