NAIA upgrade and the recovery of the aviation industry

Last week, my good friend and Manila International Airport Authority (MIAA) General Manager, Eddie Monreal, invited me to the inauguration of the upgraded runway of the Ninoy Aquino International Airport (NAIA). As a certified aviation geek, I accepted the invitation, if only for the opportunity to stand in the middle of the runway and observe aircraft movements. Like I said, I am an aviation geek.

The upgrades done included the repair and cement overlay of Runway 13/31 and the construction of an additional holding area for Runway 13. Although the improvements may seem minor, their effect on runway capacity is significant. With this, runway capacity will increase from 40 to 50 movements per hour or a total of 240 commercial flight movements per day.

It will be recalled that NAIA’s runways, taxiways, holding areas, and aprons were infamous for having potholes and surface depressions. The poor quality of the surface compelled aircrafts to slow down when passing over them, causing delays in turn-arounds during take offs and landings. These potholes could potentially damage the landing gear of aircraft too. The concrete now used in Runway 13 is of the highest quality and is expected to last between 15 to 20 years.

The recent improvements to NAIA’s runway are part of an ongoing program of modifications to improve NAIA. In the pipeline are the construction of additional rapid exits and taxiway expansion which is estimated to be completed by next year. When finished, runway capacity is seen to reach 60 movement per hour.

Although the privatization and rehabilitation of NAIA was cancelled for reasons that remain unclear, the tandem of Department of Transportation (DoTr) Secretary Art Tugade and MIAA’s Monreal have made sure that a stream of improvements are still carried-out in the country’s principal gateway. Apart from the recently completed runway improvements, the check-in and baggage claim areas of Terminal 2 have also been expanded to allow more space for passengers.

We hope the tandem will consider renovating the waiting area for arriving passengers in Terminal 1. At present, it is decrepit, cramped, and inefficient — it does not do justice to the NAIA experience. We hope this will be made a priority soon.

The runway upgrade marks the 121^st airport improvement project completed under the watch of Sec. Tugade. Well under way are 114 more projects, with 75 more waiting to break ground. For the sheer amount of work delivered, I reckon Sec. Tugade is, bar none, the most productive cabinet member of the Duterte administration.

RECOVERY OF THE AVIATION INDUSTRY
The respective Chief Operating Officers of Philippine Airlines (PAL) and Cebu Pacific, Michael Shau and Gilbert Santa Maria, were present during the runway inauguration. Between photo ops, we talked about the prospects of recovery of the airline industry. Both COOs agree that passenger volume will only approximate 2019 levels by 2024.

Although many believe that the vaccination program presently being rolled out everywhere (except the Philippines) will cause the airline industry to bounce back sharply, the International Air Transport Association (IATA) forecasts that demand for air travel will not reach pre-crisis levels until 2024.  IATA confirms the prognosis of both PAL and Cebu Pacific.

That said, we must give credit to the owners and employees of both PAL and Cebu Pacific for managing to keep their respective airlines afloat despite the challenging circumstances. As of today, some 43 airlines have already filed for bankruptcy including major legacy carriers like Avianca, LATAM, and Virgin Atlantic. The fact that PAL and Cebu Pac are still flying is testament to their owner’s commitment to nation building (and public service) and the savvy of their management. I have nothing but respect for them.

The commercial aviation industry has been through hell and their troubles seem to be unrelenting. From soaring revenues of $838 billion in 2019, sales plunged to just $328 billion in 2020. Carriers were forced to roll-out massive cost-cutting programs to stay afloat. Operating expenses of airlines worldwide were slashed from to $795 billion in 2019 to $430 billion in 2020. The 46% slash represents millions of employees put on furlough or retired. Were it not for some $173 billion in financial support granted by various governments to their national airlines, we would have seen more bankruptcies filed.

Passenger volume dropped to some 1.8 billion last year, pushing the industry back to 2003 levels. This is a far cry from 4.5 billion passengers who traveled in 2019.

The good news is that cargo operations showed better performance in 2020 compared to 2019. IATA data shows that despite a 45% drop in passenger demand, cargo revenues increased to $117.7 billion in 2020 versus $102.4 billion in 2019.  Still, it was not enough to keep airlines in the black.

Although data is still incomplete, IATA expects the accumulated losses of airlines to amount to $118.5 billion for fiscal year 2020. It is expected to shrink to just $38 billion this year. With losses mounting, only airlines with access to additional capital will survive.

People will start flying again only if borders reopen and the two-week quarantine period is relieved, said Chris Goater, the Assistant Director for Corporate Communications at IATA. On the assumption that borders open by mid-2021, the airline organization expects that overall revenues should grow to $459 billion this year. It would be a significant improvement from last year, but still 45% less than 2019 levels.

In terms of passenger volume, IATA expects passenger numbers to grow to 2.8 billion this year, a billion passengers more than last year but 1.7 billion less than 2019.

IATA noted a shifting preference towards domestic or short-haul travel since it is perceived to be safer. This indicates that domestic travel is expected to perform better than international service, at least in the next few years.

Asia Pacific airlines are seen to be the first to recover. This is due to relatively successful anti-virus control as well as the high volume of cargo demand in this part of the world. Airlines with large cargo operations have already shown better financial performance compared to those relying on commercial passenger flights only.

Carriers from north America will be the second to recover followed by those from Europe.

Since Middle Eastern airlines generally rely on long haul travel, they will be the fourth group to recover. However, their extensive cargo capacities and vast destination networks should help them stay afloat.

Last to recover are expected to be airlines from Latin America and Africa due to the delayed roll-out of vaccines in these continents, said IATA.

COVID-19 (coronavirus disease 2019) has been the worst crisis on record for the aviation industry. Let’s hope most airlines survive the merciless onslaught, especially our very own PAL and Cebu Pacific.

Andrew J. Masigan is an economist

andrew_rs6@yahoo.com

Twitter @aj_masigan