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Covid-19 second attack sends air carriers into a tailspin

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While their financial health is still fairly poor, the return of Covid-19 is undoubtedly a major blow to air carriers, making their prospects for survival and recovery more distant.

It comes as no surprise that the aviation industry has been one of the hapless victims of Covid-19 since the beginning of the year. The total loss the global pandemic inflicts on this industry could have reached VND65 trillion, not just VND30 trillion as previously estimated, says the Civil Aviation Administration of Vietnam (CAAV) under the Ministry of Transport. Almost all international services are now inoperative, whereas domestic ones were gradually recovering from May to July until the second wave of Covid-19 suddenly emerged in Vietnam. In this dismal context, most air carriers suffered a drastic year-on-year fall in their business results for the first half of this year.

Specifically, Vietnam Airlines (HVN) has published its financial statement reporting revenue from sales and service provision in the second quarter of 2020 reached only some VND6 trillion, only a quarter of the figure recorded in the same period last year (over VND24.36 trillion). Expenses deducted, the total pre-tax profit of Vietnam Airlines in Q2 was minus VND3.98 trillion. Overall, in the first six months of 2020, the national flag carrier earned more than VND24.93 trillion in revenue, a 50% drop year-on-year. At the same time, its total profit before tax was minus VND6.54 trillion, versus the positive net profit of around VND1.78 trillion in the first half of 2019. Vietnam Airlines this year is expected to incur a net loss of about VND13 trillion and suffer a shortage of some VND16 trillion in its cash flow.

Similarly, the financial statement of Vietjet (VJC) shows this low-cost airline earned only VND1.97 trillion from air transport in the second quarter, a decline of 54%, equivalent to a loss of VND1.12 trillion from this core operation. For the first six months of the year, the total loss Vietjet ran up from its aviation business amounted to some VND2.11 trillion. However, asset transfers and financial investments allowed Vietjet to record financial revenue in the second quarter of 2020 was over VND1.17 trillion. In regard to financial expenses, this air carrier recorded a reimbursement worth VND690 billion as securities devaluation provision for its investment in PV OIL. However, there was a loss of VND710 billion from exchange rate difference. In the first half of the year, Vietjet achieved VND12.2 trillion in revenue, a half of the year-ago figure, with its profit after tax put at more than VND73 billion, as per its consolidated financial statement.

Another aviation company, Bamboo Airways, whose business results for the first six months of the year are not yet revealed, has registered a loss of over VND1.5 trillion in the first quarter. Even the Airports Corporation of Vietnam (ACV), a big name in the airport business in Vietnam, is no exception. ACV’s consolidated financial statement for the second quarter of 2020 incurred a loss of VND356 billion, the worst result since its establishment.

Challenges brought by the new Covid-19 outbreak

The number of general flights operated by domestic airlines has gone down by about 12% and the number of passengers by more than 30% compared to the time before the pandemic came back, according to the statistics of CAAV. The first Covid-19 outbreak early this year inflicted severe damages on the aviation industry, which had not yet recovered when the second wave recurred. In addition, the peak summer season of the aviation industry is normally from April to September. Now, as all flights to and from Danang have been suspended and social distancing done in some localities to prevent the spread of the disease, air carriers find their plans for the summer market virtually shattered.

CAAV cites its latest statistics saying that the number of flights in general has declined by some 12% and the number of passengers by over 30% compared to before the second wave of Covid-19. For example, on July 30, there were only 656 flights carrying more than 93,500 passengers, whose rate of passengers per flight was 70%. In addition, with the order to stop all flights to and from Danang, 80,000 tickets or so have been refunded or canceled as of July 31, excluding the number of air tickets booked and used by passengers in August. Currently, all airlines have to carry out customer support policies and reschedule their flights until the end of October 2020.

In line with the hardships of the aviation industry as a whole are the negative movements of airline stocks, which have taken a dive again after a short rebound. At the end of the trading session on August 7, HVN shares were traded at VND23,650 each, down 8% from the price of VND25,800 prior to the report of the 416th case of Covid-19 in Danang. Earlier, in the first quarter, when Covid-19 first broke out, HVN once tumbled to the price range of VND17,000 per share, meaning nearly 50% of its value had been lost. Then, in the second quarter, along with the market recovery and the policy for domestic tourism stimulus adopted by the Government, this stock once climbed up to VND28,000 a share before falling back.

Similar to HVN, VJC lost 7% of its value in the last ten sessions, now standing at around VND100,000 per share. Compared to the beginning of the year, VJC shares are currently over 36% cheaper. Similarly, ACV has dropped more than 7% in just over a week and by nearly 30% against the year’s beginning.

In fact, as soon as Covid-19 broke out, in an attempt to partly absorb shock for the aviation industry, the Ministry of Transport submitted a series of support measures to the Government for consideration, tax exemption and reduction, delay in payment to the State budget, and debt restructuring, to name but a few. Still, the impact of the pandemic on the aviation industry proves way too powerful. In particular, while their financial health is still fairly poor, the return of Covid-19 is undoubtedly a major blow to air carriers, making their prospects for survival and recovery more distant.

By Linh Trang

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