Analysts: Worst over for SARS-hit airlines


  • Business
  • Wednesday, 28 May 2003

BY K.P. LEE

WITH the lifting last weekend of a travel ban to Hong Kong and China’s Guangdong province by the World Health Organisation, the first glimmers of hope are appearing for Asia’s embattled airlines, which have been struggling with poor passenger numbers and bottom lines, hit by the Severe Acute Respiratory Syndrome (SARS) virus.  

“We have seen the worst for airlines,” said a Hong Kong-based analyst who was optimistic that the hotel, restaurant, travel and leisure industries in the region could be tailing the airlines on the takeoff to an uptrend.  

Except for Taiwan, SARS appears to be under control in the region, with substantially fewer new cases reported. 

How long it would take for businesses most directly affected by SARS to recover, however, remains something analysts were not prepared to put a timeframe to.  

Some said the situation should improve in a couple of months, while others were less certain and said there were still challenges to be overcome as SARS has not been fully eradicated in the region.  

ING Financial Markets aviation analyst Philip Wickham is optimistic that the airline industry would pick up from where it left off a couple of months ago. He said there was already a high level of pent-up demand, particularly for business travel, in the region. 

He predicted a strong traffic rebound for airlines such as Cathay Pacific and Singapore Airlines (SIA), which have traditionally carried a high proportion of business traffic.  

Travel demand should return in the third quarter and the major Asian airlines should be operating as normal by year-end, he added.  

Mark Webb, an aviation analyst at HSBC Securities in Singapore, said “normalcy” could take longer – by up to a year or more.  

He does not expect air travel to fully recover until next year because there is still much confidence building to be done.  

The markets, nevertheless, drew comfort from the first positive outlook for the travel industry in many weeks by pushing airline stocks higher.  

Some analysts said the drop in value of some Asian carriers since the Iraq war and SARS outbreak had created an opportunity to pick up airline stocks on the cheap. ING’s Wickham said both Cathay Pacific and SIA shares were trading below their fair values.  

Hong Kong-based Cathay's shares gained 5% yesterday to an eight-week high, closing at HK$9.90. SIA shares, however, did not show the same rebound following a warning from Singapore Prime Minister Goh Chock Tong on Sunday that the airline could be making S$1bil in losses this year if costs were not cut. It's shares closed at S$9.45. 

MAS shares have also risen strongly since last week but lost 2 sen yesterday to close at RM3.56 in a weaker overall market.  

The KLSE retraced its tracks slightly on profit-taking with the Composite Index closing 3.63 points lower at 652.11 after nine consecutive days of gains.  

To the SARS website 

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