Philippine airlines are losing Chinese tourists amid coronavirus outbreak that Duterte serenaded with pro-Beijing overtures
- Philippine Airlines and Cebu Pacific have pulled their China region flights as the coronavirus outbreak triggers travel restrictions
- Their stock prices have taken a beating since the Filipino government banned travellers from mainland China, Hong Kong and Macau
When Philippine president Rodrigo Duterte pursued closer foreign relations with China, he helped attract planeloads of Chinese tourists to the Southeast Asian nation. Now, the coronavirus outbreak is reversing the trend, much to the chagrin of airline companies.
Budget carrier Cebu Pacific has put its expansion plans into the Chinese market on hold after the Covid-19 disease triggered the biggest health scare in the region since the Sars (severe acute respiratory syndrome) outbreak in 2003. Cebu Pacific and Philippine Airlines have both cancelled all China-related flights until the end of March, and both stocks have taken a beating along the way.
The country has reported three infection cases, and recorded the first death outside China on February 2. After that, Duterte imposed a sweeping ban on travels to and from mainland China, Hong Kong and Macau to protect the country in one of the most drastic reactions by regional governments. Approvals for visas on arrival have also been tightened.
“Traveller volumes on China-Philippines routes have fallen,” said Jose Enrique Perez De Tagle, vice-president of corporate communications at PAL Holdings, which owns Philippine Airlines. Mainland Chinese account for about 10 per cent of its global passengers, he added.
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Since Duterte won the presidential election in June 2016, the combative president has embraced closer ties with Beijing despite territorial disputes in the South China Sea. He has also distanced the country from the US, including a decision last week to end the Visiting Forces Agreement, a 21-year pact that allowed US troops to be based in the country for bilateral exercises.
Mainland Chinese tourists have since become the nation’s second-largest source of tourist arrivals in the Philippines, according to government data. They made up more than one-fifth of the 7.5 million arrivals in the first 11 months of last year, versus 9.1 per cent in 2013.
The Philippines received 1.26 million Chinese tourists in 2018 versus 491,000 in 2015, according to Colliers, citing government data. They spent US$1,130 per person on average, boosting the retail and tourism sectors. In January to November last year, arrivals jumped 40 per cent year-on-year, faster than the national average of 10-15 per cent, Colliers said.
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The coronavirus outbreak has claimed more than 1,800 lives and infected more than 71,000 people worldwide, mostly in mainland China.
Before the outbreak, which originated in Wuhan, local carriers were emboldened by the surge in Chinese visitors to consider adding more routes in China to take advantage of the growth.
Cebu Pacific used to fly 105 times weekly between the Philippines and airports in the region, including Hong Kong and Macau, supplying more than 60,000 seats. Shenzhen is a new destination, while new connections to Guangzhou and Shanghai were launched in 2019.
“Our mainland China routes are among our fastest-growing international routes,” said Joe Kwok, CebuPac general manager for Greater China. “Including our Hong Kong and Macau routes, they comprise a significant bulk of our international business.”
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Cebu Pacific, which expanded its Greater China capacity by 70 per cent in 2019, will have to pull back for now. In total, 16 routes have been temporarily suspended under the travel restrictions, Kwok added.
The impact could translate into a profit swing of 3 billion pesos (US$59 million) to 4 billion pesos for Cebu Pacific, the company said in a stock exchange filing on February 3. That is based on the assumption that the coronavirus crisis will drag on for six months.
The impact on PAL could be larger as it has a bigger seat capacity in the Chinese market, according to Jose Mari Lacson, head of equity research at ATR Asset Management. “Given this, the potential impact to the industry’s earnings could be substantial, particularly if the situation persists.”
Beyond the Chinese market, a possible restriction on travel imposed by other countries will also inevitably hurt airlines, said Justino Calaycay Jnr, Philstocks Financial assistant vice-president for research and client engagement. That applies to both mandatory and voluntary restrictions, he added.
Cebu Pacific’s shares have fallen 12.3 per cent this year to 7.50 pesos on February 14. PAL Holdings has lost 10.8 per cent to 7.30 pesos over the same period. Both losses are wider than the 5.7 per cent decline in the Philippine Stock Exchange index.
