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Air fare discounts can't beat SARS

For General Motors Corp, which has 18,000 employees in Asia, not even cut-rate airfares will prompt it to lift a travel ban it imposed after the outbreak of a killer virus.

"The restrictions are there because the safety of our employees is first," said General Motors spokesman Henry Wong. "Fare cuts would have no influence."

As businesses around the world prohibit travel to and within Asia, few industries are feeling more pain than airlines. Cathay Pacific Airways Ltd, Singapore Airlines Ltd and other Asian carriers, which have cut more than 300 flights because of lower demand, may suffer anew should cheaper fares fail to lure business travelers who make up 40 percent of sales.

"Airlines would definitely lose money this quarter, and if this crisis continues, they may even lose money for the year," said Mark Tan, an investment analyst at UOB Asset Management, which manages the equivalent of US$6.8 billion.

"The premium travelers just won't travel now," Tan said.

The outbreak of severe acute respiratory syndrome, or SARS, resulted in Cathay's "biggest commercial hit," according to chief executive David Turnbull, who said the airline is filling about a third of its seats on a reduced flight schedule.

Cathay yesterday announced that it will temporarily cut scheduled passenger services by more than one-third in an effort to contain the financial impact caused by SARS and the war in Iraq.

"Cathay Pacific is being badly affected by the fall in passenger demand and we must therefore take action to conserve cash and minimize spending," Turnbull said in a statement.

This is the third round of flight cuts that Cathay has been forced to make since March 31. In all, the carrier decided to cut 184 weekly services, or 37 percent of its normal weekly schedule, to 19 destinations.

Singapore Air will also cut flights for the third time in a month mainly because of SARS. Combined with the earlier cuts, the airline is cutting about 20 percent of its available seats, it said in a statement.

Airlines are in a dilemma: already suffering from sagging demand for tickets because of the war in Iraq, they're reluctant to cut fares and risk lower profits. At the same time, business travelers won't take to the skies again until it's clear that SARS has faded as a health concern in the region.

``You can only discount if you see a reasonable prospect of bringing people in,'' said Peter Harbison, managing director of the Center for Asia Pacific Aviation in Sydney.

``The time will come only when the main perceived threat has disappeared,'' he said.

Discounts helped Asian airlines lure passengers back after the 2001 terrorist attacks in the US and the nightclub bombing on Bali last October. Singapore Air offered flights and hotel promotions to Bali at half-price after the bombing and restored flights to the island within a month.

Analysts say promotions may not work this time amid travel warnings from the World Health Organization and nations such as Japan, the US and South Korea.

Most airlines have so far refrained from cutting fares.

"We do not think that adjusting fares will stimulate the market, nor would promotions be effective at this stage," Singapore Air said.

Yet lower fares may be offered as early as this month, said Ivy Tan, a spokeswoman for Chan Brothers International, a Singapore-based travel agent. Bookings at the tour agent fell 20 percent in March, and Tan expects a 50 percent decline in April.

"Airlines are going to do something about it if there is no demand," said Cally Fung, general manager of Joyful Holdings Travel Services Ltd in Hong Kong.

"Airfares are likely to fall at least 20 percent in April and May," Fung said.
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