Coronavirus: How the disease is incurring losses for airlines

Airlines face a possible $27.8 billion loss in full-year revenue due to the coronavirus outbreak.
Airlines face a possible $27.8 billion loss in full-year revenue due to the coronavirus outbreak.

Dubai - Virus outbreak may wipe out 13% full-year passenger demand, billions in losses, says Iata report

By Staff Report

Published: Fri 21 Feb 2020, 11:00 PM

Last updated: Sat 22 Feb 2020, 11:24 PM

The International Air Transport Association (Iata) on Friday announced that its initial assessment of the impact of the Novel Coronavirus 2019 outbreak (Covid-19) shows a potential 13 per cent full-year loss of passenger demand for carriers in the Asia-Pacific region.
Considering that growth for the region's airlines was forecast to be 4.8 per cent, the net impact will be an 8.2 per cent full-year contraction compared to 2019 demand levels.
In this scenario, that would translate into a $27.8 billion revenue loss in 2020 for carriers in the Asia-Pacific region - the bulk of which would be borne by carriers registered in China,with $12.8 billion lost in the China domestic market alone.
In the same scenario, carriers outside the Asia-Pacific are forecast to bear a revenue loss of $1.5 billion, assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to $29.3 billion  - 5 per cent lower passenger revenues compared to what the Iata forecast in December - and represent a 4.7 per cent hit to global demand.
In December, the Iata forecast global RPK growth of 4.1 per cent, so this loss would more than eliminate expected growth this year, resulting in a 0.6 per cent global contraction in passenger demand for 2020.
These estimates are based on a scenario where Covid-19 has a similar V-shaped impact on demand as was experienced during the Severe Acute Respiratory Syndrome (Sars). That was characterised by a six-month period with a sharp decline followed by an equally quick recovery. In 2003, Sars was responsible for the 5.1 per cent fall in the RPKs carried by Asia-Pacific airlines.
The estimated impact of the Covid-19 outbreak also assumes that the center of the public health emergency remains in China. If it spreads more widely to Asia-Pacific markets then impacts on airlines from other regions would be larger.
It is premature to estimate what this revenue loss will mean for global profitability. We don't yet know exactly how the outbreak will develop and whether it will follow the same profile as Sars or not. Governments will use fiscal and monetary policy to try to offset the adverse economic impacts. Some relief may be seen in lower fuel prices for some airlines, depending on how fuel costs have been hedged.
"These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority. Airlines are following the guidance of the World Health Organization [WHO] and other public health authorities to keep passengers safe, the world connected, and the virus contained. The sharp downturn in demand as a result of Covid-19 will have a financial impact on airlines - severe for those particularly exposed to the China market," said Alexandre de Juniac, the Iata's director-general and CEO.
"We estimate that global traffic will be reduced by 4.7 per cent by the virus, which could more than offset the growth we previously forecast and cause the first overall decline in demand since the global financial crisis of 2008-09. And that scenario would translate into lost passenger revenues of $29.3 billion. Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue. This will be a very tough year for airlines."
Saj Ahmad, chief analyst at London's StrategicAero Research, told Khaleej Times that the Iata's financial projections are "probably on the conservative side".
"The fact that China has thus far been incapable of getting its arms around the Covid-19 spread within its own borders has meant that the virus has all too easily been spreading beyond China rapidly," he said.
"Add in the fact that there is no definitive answer as to how the virus is transmitted and this pandemic is only going to get worse. China's isolationism is growing by the day and this not only impacts commerce in and out of the country, but given that China has been enmeshed within the supply chains of tens of millions of businesses and industries the world over, it stands to reason that the fallout is impacting travel too."
"Just this past week, Cathay Pacific slashed earnings projections while Air France sees a $200 million hit. Vietnam Airlines has stated it's losing $10 million a day; this sort of cash haemorrhaging cannot continue indefinitely and its highly likely that the airline industry will see casualties, particularly in China and Asia where the risk is so much higher."
Role of governments
Governments, the Iata pointed out, have an important role to play in this crisis. In terms of operations, airlines have developed standards and best practices linked to the International Health Regulations (IHR) to manage effectively and efficiently in times of public health emergencies. Airlines, therefore, depend on governments to also follow the IHR so we have an effective global approach to containing the outbreak.
"We have learned a lot from previous outbreaks. And that is reflected in the IHR. Governments need to follow it consistently," said de Juniac.
On leadership, the Iata says it is also important for governments to take leadership in shoring up their economies. The Singapore government, for example, is allocating S$112 million to provide financial relief to airlines struggling to economically maintain connectivity.
"Airlines and governments are in this together. We have a public health emergency, and we must try everything to keep it from becoming an economic crisis. Relief on airport costs will help maintain vital air connectivity. Other governments should take good note and act quickly," said de Juniac.
Advice to travellers
The WHO has not called for restrictions on travel or trade. Indeed, air transport plays a major role - bringing medical staff and supplies to where they are needed.
The WHO has published extensive advice to travellers on its website: Passengers should be reassured that cabin air is filtered, that aircraft are cleaned in line with global standards, that key airports have implemented temperature screening for travellers and that airline staff and crew are trained to deal with the rare case of a passenger presenting with symptoms of infection.
"If you are sick, don't travel. If you have flu-like symptoms, wear a mask and see a doctor. And when you travel wash your hands frequently and don't touch your face. Observing these simple measures should keep flying safe for all," said Dr David Powell, the Iata's medical advisor.

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