Specialist
Former Head at Cathay Pacific Airways Ltd
Agenda
- Update on APAC capacity cuts and their impact on airlines
- Cargo operations and other potentially mitigating factors
- Long-term consequences of industry distress
Questions
1.
Could you give us an update on how passenger numbers have declined since our last Interview, and how that might impact lost revenue, perhaps on a percentage basis?
2.
How quickly could volumes realistically return to the baseline? Is this a situation with pent-up demand, or do you think that the sentiment issue might cause a slower rebound? In China, you were talking about how it’s slowly rebounding as the domestic capacity starts to come back online. You mentioned, about 60% of domestic capacity is still cut.
3.
Do you think there are any reasons why China might have a different recovery path than the rest of the world?
4.
Do you have any view on the value of aircraft assets at the moment? Especially when there are many aircraft grounded, and not generating cash flow or any return on the aircraft asset. What impact are you expecting on the value of aircraft at the moment, and the market for aircraft, and how has that evolved during this crisis?
5.
On that particular transaction with BOC Aviation that you mentioned, I think it cost USD 700m for six Boeing 777s. If you look at the list price online, it’s something like USD 320m per plane, but the transaction value suggests more like USD 115m per plane. Do you think that’s due to the likely age of these planes, or do you think that’s a haircut based on market conditions?
6.
Do you think that the credit risk of some of these airline customers is being priced into the value of aeroplanes? To me, that sounds like residual value risk isn’t as outsized as one might think. If appraised values of aircraft assets on the books of either lessors or airlines drop over the next quarters, do you think that’s an issue? If that’s an issue, will it come from credit risk as opposed to residual value risk?
7.
Do you think there are any lessors in this region, or who have a lot of exposure in this region, who might be better off or worse off in this situation? I know AerCap said two-thirds of its revenue base comes from the big three in China, who probably receive sizeable support from the government. What about lessors such as BOC? Do you think there’s any lessor that has a poorer book quality relative to others?
8.
Have you perceived any airlines at risk of actually losing out on slot agreements or slot allocations? Could you outline what key airports in APAC have been doing during this period? In our previous Interview you mentioned airports and slot arrangements, and how that impacts airline behaviour.
9.
What are the major cost-cutting initiatives that have been announced by the various APAC airlines, and what are some of the long-term consequences? If an airline lays off a lot of people, how easy is it to hire them back when the demand rebounds? Airlines have a lot of unpaid leave, but across the board, redundancies haven’t been announced quite as much as many people have been expecting.
10.
My understanding is that Cathay Pacific’s February loss wiped out its entire 2019 net profit. How much runway do these airlines realistically have before they have forced lay-offs?
11.
From an operational standpoint, when do you know an airline is at risk of failure? You talked about robbing spare parts from other planes in the fleet, and death spiral indicators. What else would indicate to you that an airline is literally on the edge?
12.
In our last Interview [see APAC Aviation – Coronavirus Pressures & Volume Impacts – 19 February 2020], you said that there was a potential silver lining in cargo, to offset deepening passenger capacity cuts. How effective has this been? Have you noticed any particular airline being able to redirect capacity into cargo effectively?
13.
Are there any other indicative factors that you think might help provide APAC airlines with some hope during this time?
14.
We’ve talked about airlines and lessors to some extent, but what about the rest of the essential aviation value chain? How much of that chain do you envisage being impacted? Do you think it’s going to get as much attention or support as the airlines themselves? If not, what are the long-term consequences?
15.
Last time we talked, you mentioned the passenger booking curve, how that had inverted. Now, instead of last-minute bookings, we get last-minute cancellations, and that reflects the low sentiment towards flying. How can we examine the passenger booking curve as a leading indicator, if it leads, or if it lags? How long will it take for that to normalise? You might base that on the 2003 Sars [severe acute respiratory syndrome] epidemic, etc.
16.
You mentioned that, post Sars, travel demand came back, and part of that was due to stimulation on the airlines’ side. What typical discounting behaviour might you expect in a post-crisis environment? Do think that will be a global situation?
17.
Do you think, even when volumes recover, there could be an issue of suppressed yields and therefore suppressed RASK [revenue per available seat kilometre] trends among the major airlines? If this continues for two or three years, could it then become more of a structural, multi-period issue?
18.
When you examine this market, is there any route that you think is either very lucrative but high-cost, or otherwise difficult to maintain? Are there routes where the major airlines with strong balance sheets might expand their market share as players start to exit the market?
19.
Do you think that post crisis, airlines in APAC will operate differently, if they avoid structural failure? If so, how do you think they’ll operate differently?
20.
How do you think airlines in APAC are evaluating their capital spending plans and things like plane deliveries? Do you think airlines will start having to defer plane deliveries and delay capital spending, even for maintaining their fleets?
21.
You mentioned that a lot of airlines are likely to defer plane deliveries, for example, at a small penalty. Do you think these penalties will even be enforced on the part of Boeing and Airbus? Do you think they would consider deferring these, unless they have to charge them to remain afloat themselves?
22.
Would you like to close with any comments on events that you’d advise we anticipate, or any trends that you think we need to monitor?
