Is there Light at the End of Tunnel for International Flights in Australia?

  • Jun 17, 2020 AEST
  • Team Kalkine
Is there Light at the End of Tunnel for International Flights in Australia?

Summary

  • Australian commercial flight operations seem to be underpinned by potential kickstart in travel bubble with different countries in discussion, Chinese business activities and EU border reopening.
  • Mounting fiscal deficit and availability of alternate flights may affect the government-backed subsidy plans for airline players.
  • Trans-Tasman trade concerns and impetus to bring back overseas students is expected to play a critical role in governing the border restrictions.

Australia, at the onset of pandemic, was swift to close its international borders which seemed to be reaping well for the country kickstarting its activities. Treasurer Josh Frydenberg hinted that the country is in ‘reasonable shape’ as it did fairly well against the virus. While, nationwide lockdown “stripped jobs from hospitality, retail and tourism”, as highlighted by Prime Minister Scott Morrison. 

Statistics released by the Department of Infrastructure, Transport, Regional Development and Communications indicate that the international scheduled passengers declined by 98% over a year, from 3.503 million in April 2019 to 69,476 in April 2020.

Moreover, the seat utilisation also dwindled 29.5% in April compared to data recorded at the same time previous year. Travel restrictions that involved cutting off the overseas travel remained as the dominant force driving the decline in the numbers. 

 

Source: Department of Infrastructure, Transport, Regional Development and Communications

Source: Department of Infrastructure, Transport, Regional Development and Communications

 

The effect on domestic travel was, however, less severe compared to overseas travel. Nevertheless, travel restrictions affected passengers carried on Australian domestic commercial aviation in March 2020, resulting in a drop of 37.2% on March 2019.

While local aviation operations seem to be picking up the steam with lifting of restrictions in a phased approach, many are still eyeing the substantial revival of international flight operations in the country. 

Current Rules for International Travel

Current border restrictions in Australia allows only Australian citizens, residents and immediate family members to enter into the country. Meanwhile, the ones departing from Australia require exemptions. A quarantine of 14 days is applicable to the visitors entering the country.

However, no information about the lifting of travel ban is present, which might depend upon the domestic and international COVID-19 scenario. The country has extended the overseas travel restrictions for another three months till 17 September 2020.

Flight Operations: Shedding Light on Stats 

Scheduled services to/from Australia were provided by 47 international airlines during April 2020. Qatar Airways remained at the top of the chart during April 2020 in terms of passenger carriage, witnessing 44.5% of the total passengers.

 

Source: Department of Infrastructure, Transport, Regional Development and Communications

 

Notably, Qantas and Virgin Australia which remained operational on international routes in the past few months, have now suspended their overseas flight operations indefinitely owing to ending of the Government funding. 

Flight operations were backed by Government-subsidy to repatriate the Australians that were stranded in other nations. The aid which initiated since 3 April 2020 has ended as the Government feels that significant time has allowed the Aussies to reach back home. 

Meanwhile, state-owned airlines such as Qatar continues their operations. The experts point out that despite not having the commercial viability, the continuance of the flight’s services focusses on branding and attracting customers. 

Optimism Around the Airlines Industry

The consumer and investor confidence riding on the back of Australian reopening and hopes of economic recovery seems to be driving positive hopes for international travel.

Prime Minister has urged the state governments to open borders which would facilitate trade. Although, many recent headlines appeared to brim the interest in the Airlines operational scenario, despite no clear indication on the significant resumption of international flight operations. 

Tran-Tasman Trade

Australian Government has indicated that its plan to expand the ‘travel bubble’ with neighboring Kiwis would be the initial step towards resumption of overseas travel. However, as per NZ, it all depends on state governments lifting the border restrictions.

Meanwhile, travel and tour players are keenly eyeing the Trans-Tasman Trade which could provide a positive nudge to flight operations with the upcoming skiing season.

Concerns Regarding Students Return

Australia, deriving its significant portion of the revenue from overseas students, is eagerly planning to bring back students to the country. Australian PM has earlier indicated that the students could be back by July 2020. 

As a component of the international travel resumption plan, a shorter quarantine period has also been flagged for international students.

Improving conditions in Europe and China 

China has kickstarted majority of its business activities which can potentially enhance business travel prospects for the airlines. Besides, the ameliorating health scenario for the European countries is sending a positive note to airline players. Ahead of the summer holidays, many European countries have reopened their borders for other EU nations from 15 June 2020. 

The relaxation in border restrictions across the international landscape is echoing budding optimism that can be translated to Australian flight operations. 

Hurdles that might Affect the Revival

Despite improvement in many situations, AU is yet to cross many obstacles that mark the path of Airlines revival. 

Government’s Economic trouble

While support packages and other government aids released during the lockdown assisted the country in sustaining economic activities, they have created enormous debt burden on the Australian Government.

Record-high fiscal deficit would impair Government’s ability to fund the operations succinctly. While airlines eyeing for government support may have to face disappointments as they struggle to sustain their operations. 

Already operational state-owned flights 

The imminent travel needs for international travel is fulfilled by flights such as Qatar Airways or Singapore airlines. While the demand continues to stay low, the Government might not be forced to provide additional funding to the Australian commercial flights. 

Fear of the Second wave of infection

The Government and Authorities, along with the travelers, are apprehensive of the second wave of disease which can be accelerated by opening the flight operations. The absence of any anti-coronavirus drug or vaccine further worsens the fear of second wave, which, as suggested by the experts, can pose much more severe damage. 

How are stocks Positioned in the Travel Space?

Qantas Airways Limited (ASX: QAN), which secured $550 million in debt funding in May 2020, indicated healthy cash balance with lower cash-burn rate, providing the scope to manage through the pandemic scenario. Notably, QAN shares appreciated by 29.25% in the past one month to close at $4.520 on 16 June 2020.   

Virgin Australia Holdings Limited (ASX: VAH) is into another stage of the sale of its business and assets which is competed by two US bidders, Bain Capital and Cyrus Capital. VAH stock gave a 1-month return of 7.5%, last traded on 9 April 2020. 

As on 16 June 2020, Sydney Airport Holdings Pty Ltd (ASX: SYD) stock accentuated by 11.43% in past one-month to $6.240.  

 


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