Coronavirus outbreak set to cost airlines $30bn in revenue

Coronavirus outbreak set to cost airlines $30bn in revenue

Economics Global 24, February 2020
24 February 2020


Coronavirus outbreak set to cost airlines $30bn in revenue

IATA warns it is “premature” to estimate what the potential losses would mean for global profitability.

Airlines in Asia-Pacific could suffer a potential 13% full-year loss in passenger demand as a result of the coronavirus (Covid-19) outbreak.

That is according to the latest analysis from the International Air Transport Association (IATA), which has revised its forecast figures for the region from an expected 4.8% growth increase to an 8.2% full-year contraction, compared to 2019 figures.

Such a scenario would result in a $27.8 billion revenue loss for Asia-Pacific carriers in 2020. The majority of that would be carried by airlines registered in China, with $12.8 billion lost in that domestic market alone.

IATA analysis predicts that in the same instance, carriers outside Asia-Pacific would lose $1.5 billion in revenue if the fall in demand is limited to markets linked to China.

That would bring total global lost revenue to $29.3 billion (5% lower passenger revenues compared to IATA’s forecast in December) and represent a 4.7% hit to global demand.

In December, IATA forecast global RPK growth of 4.1%, meaning such a loss would more than eliminate expected growth this year, resulting in a 0.6% global contraction in passenger demand for 2020.

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority,” said Alexandre de Juniac, IATA’s Director General and CEO.

“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% by the virus, which could more than offset the growth we previously forecast.

“Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue, but this will be a very tough year for airlines.”

IATA’s estimates are based on Covid-19 having a similar impact on demand to that of the SARS virus in 2003, which saw a 5.1% fall in RPKs for Asia-Pacific carriers.

However, the trade association for the world’s airlines added that it is “premature” to estimate what the possible revenue losses would mean for global profitability.

De Juniac called on governments to show leadership and follow international health regulations to ensure there is an effective global approach to containing the outbreak.

He added that providing financial relief to airlines struggling to economically maintain connectivity is also important.

“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,” said de Juniac.

“Relief on airport costs will help maintain vital air connectivity. Other governments should take good note and act quickly.”