IATA Sees a Near $30B Loss from Coronavirus

 - February 20, 2020, 2:19 PM

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

A first assessment of the traffic effects of the Novel Coronavirus 2019 outbreak (COVID-19) from the International Air Transport Association (IATA) shows the potential for a 13-percent full-year loss of passenger demand for carriers in the Asia-Pacific region. Considering an original growth forecast for the region of 4.8 percent, Asia-Pacific airlines will experience an 8.2 percent full-year contraction compared with 2019 demand levels. That would translate into a $27.8 billion revenue loss in 2020 for airlines in the Asia-Pacific region, the bulk of which carriers registered in China would bear, as the Chinese domestic market alone sees $12.8 billion in losses.

Under the same scenario, carriers outside Asia-Pacific would bear a revenue loss of $1.5 billion, assuming the loss of demand remains in markets linked to China. That would bring total global lost revenue to $29.3 billion (5 percent lower passenger revenues compared to what IATA forecast in December) and represent a 4.7 percent hit to global demand. In December, IATA forecast global RPK growth of 4.1 percent, meaning such as a loss would more than eliminate expected growth this year, resulting in a 0.6 percent global contraction in passenger demand for 2020. 

IATA based the estimates on a scenario where COVID-19 shows a similar V-shaped effect on demand that happened during SARS, when the industry saw a six-month period with a sharp decline followed by an equally quick recovery. In 2003, SARS resulted in a 5.1 percent fall in the RPKs carried by Asia-Pacific airlines. 

The estimated effect 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, the effects on airlines from other regions would prove larger.

IATA added that it remains premature to estimate what the revenue loss will mean for global profitability because no one knows exactly how the outbreak will develop and whether or not it will follow the same profile as SARS. Governments will use fiscal and monetary policy to try to offset the adverse economic effects, while some airlines might see relief in lower fuel prices depending on how they have hedged fuel costs.

“These are challenging times for the global air transport industry,” said IATA director general Alexandre de Juniac. “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. We estimate that global traffic will be reduced by 4.7 percent 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.”

IATA noted that governments play a vital role in alleviating the crisis. Because airlines have developed standards and best practices linked to the International Health Regulations (IHR) to manage public health emergencies, they depend on governments to also follow the IHR to ensure an effective global approach to containing the outbreak. “We have learned a lot from previous outbreaks,” said de Juniac. “And that is reflected in the IHR. Governments need to follow it consistently.”

Finally, IATA stressed the importance of governments taking leadership in shoring up their economies. It cited the Singapore government’s allocation of S$112 million to provide financial relief to airlines struggling to economically maintain connectivity as an example. “Airlines and governments are in this together,” said de Juniac. “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.”