26 April 2022
THE reopening of the country’s borders to foreign tourists on April 1, after being closed for two years, was a welcome relief for airlines and airports, as they expect a strong pickup in airline seat capacity and passenger volumes. The aviation industry has several obstacles to contend with, however, before it gains a strong recovery momentum. A major obstacle is the high cost of various Covid-19 testing requirements.
Malaysia requires international travellers to undergo a Covid-19 polymerase chain reaction (PCR) test within two days prior to their departure to the country and an Antigen Rapid Test (RTK-AG) within 24 hours of arrival. A PCR test is typically more expensive than the RTK-AG, but it is more accurate. The Malaysia Airlines website shows that a PCR test costs between RM250 and RM370 for Malaysians and RM350 to RM470 for foreigners at the BP Healthcare screening centres at Kuala Lumpur International Airport (KLIA) and klia2. The price of a PCR test at private clinics is about RM190.
An RTK-AG test costs RM100 for Malaysians and RM160 for foreigners at the airports. According to Malaysia Airports Holdings Bhd, there are four private health facilities operators providing the services at four airports: BP Clinical Lab Sdn Bhd for KLIA and klia2; Edgenta UEMS Sdn Bhd for Penang International Airport; MYEG Services Sdn Bhd for Kota Kinabalu International Airport; and Gribbles Pathology (M) Sdn Bhd for Kuching International Airport.
Travellers can also obtain them from private health facilities, where the average cost of a RTK-AG test is about RM80.
These requirements add to the cost of travel, especially when travelling with family, say industry players and analysts. Thus, most travellers are still adopting a wait-and-see approach on travel and will delay taking international trips.
Subhas Menon, director-general of the Association of Asia-Pacific Airlines (AAPA), says the recovery process in air travel for most parts of the world has started, but the pace is uneven.
“In 2021, overall, international air passenger demand in Asia-Pacific was less than 6% of 2019 levels. So far in 2022, demand has risen to about 10% of 2019. Europe, the US and the Middle East have recovered much faster, averaging 50% of 2019 levels in terms of demand. Relative to about two-thirds of global markets now fully reopened, only 47% of Asia-Pacific markets are open for international travel.
“This is holding back recovery because, when you say reopening of borders, it means no more quarantine and no more pre-departure testing or testing upon arrival. People want things to be as similar as possible to 2019 before Covid-19 arrived,” he tells The Edge.
Menon says pre-departure testing or testing on arrival does not make a lot of sense, as most of the Omicron variant infections are spreading by community transmission. “There are minimum imported cases from other countries reported so far because of closed borders. What is the point of testing for those travelling by air who are fully vaccinated when you don’t test people within the domestic setting, who are taking a train or bus and may not be vaccinated?
“Even if you require testing, it should be in its simplest form, where the turnaround time is short, affordable and easy to get done, which is basically the RTK-AG. A PCR test requires one to wait a minimum of 24 hours to get the results and costs twice as much [as the RTK-AG]. It is also difficult to get done because many PCR testing facilities are already experiencing a backlog, [owing to a surge in demand]. That is the position that AAPA airlines are taking as an industry, that is, Covid-19 testing is not required but, if governments insist on it, then it should not be PCR tests anymore.”
Menon believes that while the biggest deterrent to air travel is quarantine measures, Covid-19 testing comes second.
Still, he notes that governments have been reluctant to remove Covid-19 test requirements for fear of a surge in Covid-19 cases in their countries because the Omicron variant is more infectious even though the symptoms are milder than the Delta variant.
“Perhaps they are worried that their public health facilities may not be able to cope if there are more cases coming in from overseas. But it doesn’t make any sense because the numbers of cases that are being imported are very few compared with what is happening in communities. While there are people who are unvaccinated in the community, there are very few people who are unvaccinated that are travelling. In fact, one of the prerequisites for travel is that you must be fully vaccinated. It is only those who are unvaccinated that are really desperate to travel, but they are subject to quarantine.
“Air travel is very safe because many measures are already in place to make it safe. So, why do you need to do testing? People find it a big deterrent, especially pre-departure testing, because if you are in a foreign country and are coming back home, and you do a test and happen to be positive, you end up spending your own money staying longer in that country until you get a negative result,” he says.
Menon points to countries such as India and Cambodia that do not require travellers to take Covid-19 tests to enter the country. “Since March 31, all travellers vaccinated against Covid-19 can now enter Singapore with just a pre-departure Covid-19 test. We hope that Singapore will also do away with the pre-departure testing. Australia will drop its pre-departure testing requirement for international travellers on April 17,” he says.
In addition, many countries, including Malaysia, require foreign visitors to purchase Covid-19 insurance to cover at least US$20,000 (RM84,600) in Covid-19 medical bills. “So, why do you insist that people have PCR tests if your public health facilities are not going to be taxed and people already have insurance? They can take care of their own medical expenses. So, it doesn’t make a lot of sense to require pre-departure testing or testing upon arrival,” Menon points out.
“Countries such as Singapore, Cambodia and Australia have also had strict Covid-19 travel measures in the past, but they have made changes because this is what living with Covid-19 is all about.” He notes that China, Hong Kong, Taiwan and Japan still maintain tight border controls.
CGS-CIMB Research aviation analyst Raymond Yap says the pace of recovery of Malaysia’s international travel may be slowed down by the high cost of Covid-19 testing and insurance requirements.
“These requirements add to the cost of travel, especially short-haul travel. If the Malaysian government removes these requirements, the stimulus to international travel will be stronger, in our view. For instance, travellers originating from Singapore are subject to a more relaxed regime, where antigen rapid testing is permitted for pre-departure testing, while no on-arrival testing is required, and no travel insurance is required to be purchased,” he says in an April 5 report.
Can airlines return to profitability in 2023?
With the reopening of the country’s borders, Capital A Bhd group CEO Tan Sri Tony Fernandes recently said that he expected the group to return to profitability in 2023, as demand for air travel is expected to recover in the fourth quarter of the year. Last December, Malaysia Airlines managing director and group CEO Captain Izham Ismail also said the national airline was on track to break even in 2023.
Menon points out that airlines such as Southwest Airlines are already reporting quarterly operating profit. Still, the latest figures do not include the impact from the Russia-Ukraine conflict, which began at end-February.
He warns that demand for long-haul international travel remains challenged by Russia’s war on Ukraine, which is having an impact on jet fuel supply and price, which in turn would put pressure on airlines’ profits in the near term. S&P Global Platts data shows that, as at April 8, the average price of jet fuel had risen 129% to US$152.9 per barrel from a year ago.
The resulting Russian airspace closures are also expected to have a negative impact on airlines, as they have to burn more fuel to get to their destinations as well as increase crew flying time, which adds to the cost of operation, Menon says. “Some countries popular with Russian tourists, including Malaysia and Thailand, are also affected because they are unable to pay their bills with their credit cards, owing to sanctions.”
Is the worst over for the airline industry? Menon says: “I would think so. With Omicron, we thought it was going to throw a spanner in the works. But we realised that the cases are not so severe and, in fact, it provided us with an entrée of living with the virus. If governments are ready to live with the virus and reopen their borders and move away from zero-Covid-19 strategies, then, yes, we might be over it and we might see the road to recovery ahead.”
Aviation consultancy Endau Analytics founder and analyst Shukor Yusof expects 2022 to mark another year in the red for most airlines because of the Russia-Ukraine war.
Shukor concurs that travellers are frustrated by the uneven and non-uniform travel standard operating procedures among countries.
“Covid-19 testing requirements make it more tedious for leisure travellers who don’t want to put up with the unnecessary measures. This will have a pullback on discretionary spend.
“Also, travellers are required to purchase Covid-19 insurance and coverage is only one-off per country. There is no Covid-19 insurance with worldwide coverage and it is per trip, unlike that of travel insurance , which can be designed for 12 months. So, that adds up to a lot of money for international travellers,” he says.
“In Europe, they have removed most, if not all, of the Covid-19 entry restrictions. Asia is still very guarded. Like Indonesia, Bali is the only destination where you are free to enter without most of the restrictions.”
Nevertheless, Shukor believes Covid-19 testing requirements are necessary because there are still a lot of unknowns about the virus.
He says: “The World Health Organization has come out to say it is tracking a few dozen cases of two new sub-variants of the highly transmissible Omicron strain to assess whether they are more infectious or dangerous. If we get it wrong, then we would have to go back to lockdowns. Thus, we have to proceed cautiously because, once you open everything, it is like opening Pandora’s box and it will be harder to contain.
“I understand the need to repair the economy, but the health part of it still takes priority, although not to the extreme of Hong Kong and China, [which have fully closed off their borders]. While I’d like to be positive about the airline industry, we are not out of the woods — not just in terms of Covid-19, but there are so many unseen factors lurking.”
‘Malaysia should consider easing Covid-19 tests with RTK-AG’
Tunku Datuk Seri Iskandar Tunku Abdullah, group executive chairman of Melewar Group, shares Menon’s views that Malaysia should consider replacing the PCR test requirement with the RTK-AG test.
“The big question is: Do we need PCR tests? Is it necessary for PCR tests when we are departing to Malaysia from, for example, the UK, when the UK doesn’t require it? The airlines also do not require it. So, why do we take it? There is no logic for departing people. Also, those who are travelling are fully vaccinated or should be fully vaccinated and we have transitioned into the endemic phase,” he tells The Edge.
Tunku Iskandar, who is former president of the Malaysian Association of Tour and Travel Agents and former chairman of the Pacific Asia Travel Association, says most countries are now doing RPT tests rather than PCR tests.
He cites, for example, Thailand, which scrapped pre-departure tests for vaccinated travellers from April 1 and, starting in May, foreign tourists to Thailand will have to take an ATK antigen test on arrival, instead of an RT-PCR test.
“It should not be necessary anymore now that all travellers are fully vaccinated. While the PCR cost is similar here and overseas, it is a deterrent to overseas travel. If you are a family of five, you are going to spend up to RM200 each for the PCR test, which amounts to RM1,000. If you are an individual, maybe you don’t think about it. But if you are travelling as a family, it is going to be a huge cost,” he says.
Source: www.theedgemarkets.com
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