Airlines Business & Finance News

Coronavirus outbreak to cost airlines US $30bn

The International Air Transport Association (IATA) reports that according to its first studies, the impact of the 2019 New Coronavirus epidemic (COVID-19) could cause a 13% drop in the demand for air travel for airlines in the Asia-Pacific region. The net impact would be a reduction of 8.2% for all 2020 considering that the initial forecasts for the year estimated a growth of 4.8%.

That would result in the loss of revenue of USD 27.8 billion for airlines in that region. Those based in China would be the most affected, with losses of USD 12.8 million only in the domestic market of that country.

Airlines from the rest of the world would assume, so far, a loss of revenue of USD 1.5 billion, considering a fall in demand in markets connected to China, bringing the total lost revenue to USD 29.3 billion ( 5% less than the passenger revenue forecasted by IATA in December), which represents a 4.7% impact on global demand.

In December IATA had predicted that demand (in passenger-kilometer revenue, RPK) would grow 4.1% during 2020, so the Coronavirus epidemic would then cause a 0.6% contraction in RPK during 2020.

As indicated by IATA in a press release, the figures are estimated based on a scenario in which COVID-19 would have an impact on V-shaped demand (rapid contraction and equal recovery), as well as the one experienced during the SARS epidemic in 2003. On that occasion the demand had a sharp decline in a period of six months (-5.1% RPK for airlines in the Asia-Pacific region).

This also considers that the epicenter of COVID-19 remains in China, but if it expands to other markets in the region, the impact would be even greater (and not to say if what happened during the weekend in northern Italy affects Europe).

However, from IATA, they indicated that it is premature to estimate the impact on airline finances worldwide. The agency expects governments to use fiscal and monetary measures to counteract the negative consequences, which could result in lower fuel prices for some companies depending on how they have managed their purchases in the future.

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority. The airlines are following the guidelines of the World Health Organization and other public health authorities to keep their passengers safe, the world connected and the virus contained. The sharp fall in demand as a result of COVID-19 will have a particularly severe impact on airlines linked to China, ”said Alexandre de Juniac, CEO and CEO of IATA.

“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, ”he concluded.