Signs emerge Asian airlines could take off with easing lockdowns

One notable industry yet to join the Asian equity rebound is airlines, hit especially hard by global restrictions on travel and tourism from the coronavirus pandemic.

The Bloomberg Asia Pacific Airlines Index has risen just over 5% since closing at a seven-year low on March 23, well behind the 22% gain in the MSCI Asia Pacific Index. Yet there are emerging signs the sector is ready to take off as countries across the region begin to emerge from lockdowns.

Japan Airlines Co. surged as much as 11% Tuesday, the most since 2016, while ANA Holdings was up as much as 8% after the government ended its nationwide state of emergency. JAL is on a six-day winning streak and is up 23% over that period.

The gains come after European airlines got a boost overnight on news Germany has offered a $9.8 billion bailout to Deutsche Lufthansa AG.

Japanese government officials suggested Monday travel restrictions could be lifted in June. The government will also start handing out vouchers to consumers who buy travel products through tourism agencies from the end of July, Jiji reported, without attribution.

If airlines can get past a period when revenue was essentially zero then it can be said the worst is over, said Fumio Matsumoto, chief strategist at Okasan Securities.

Recovery Timeline

Still, given the uncertainties surrounding the timeline of a post-virus recovery, some airlines may not be able to wait that long.

Thai Airways International Pcl sank as much as 14% Monday after losing its status as a state enterprise. The carrier is due to seek a restructuring under Thailand’s bankruptcy law. And Air New Zealand is forecasting its first full-year loss in 18 years, with the airline forced to lay off as many as 4,000 workers, it said in a statement Tuesday.

In the meantime, airlines with domestic operations will likely fare better than those reliant on international travel, analysts say.

“Airlines with larger domestic markets, such as Chinese airlines, could fare better in the short-to-medium term given that international travel would likely take longer to recover,” said James Teo, transportation analyst with Bloomberg Intelligence. “Singapore Airlines and Cathay Pacific, on the other hand, which have no domestic business, could be affected for a longer period of time.”

That hasn’t yet translated to sustained gains for domestic carriers in China including Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. The Hong Kong-listed shares of all three are back to little changed since the March 23 market low, following a brief rally through April as domestic traffic recovered.

This may be down to lingering concerns about broader long-term industry sentiment as the International Air Transport Association issued “a rather grim outlook recently,” Teo said.

The IATA expects in a baseline scenario that global passenger demand next year will be 24% below 2019 levels and won’t surpass that threshold until 2023, according to a May 13 report.