Airlines body issues first estimate of effect of Covid-19 on the sector

6th March 2020

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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The International Air Transport Association (Iata) has issued its initial assessment of the impact on the commercial aviation industry of the novel coronavirus now officially designated Covid-19. “These are challenging times for the global air transport industry,” pointed out Iata director-general and CEO Alexandre de Juniac. “Stopping the spread of the virus is the top priority. Airlines are following the guidance of the World Health Organisation and other public health authorities to keep passengers safe, the world connected and the virus contained.”

This preliminary analysis is based on the assumption that the Covid-19 outbreak follows the same pattern as previous disease outbreaks over the past 20 years – severe acute respiratory syndrome (better known as Sars) in 2003, Avian flu in 2005 and Middle East respiratory syndrome (better known as Mers) in 2015 – that is, it peaks from one to three months after the initial outbreak, and thereafter fades away over another three to four months. Plotted on a graph, this creates a roughly V-shaped pattern.

Of these diseases, Sars was responsible for the only annual fall in air traffic in the Asia-Pacific region for nearly 20 years. Measured in revenue passenger kilometres (RPKs), Asia-Pacific air traffic declined by 5.1% in 2003, in sharp contrast to the 20-year compound annual growth rate of 7.4% for the region.

However, the impact of Covid-19 might be much greater, because China is a much bigger part of the global economy today. In 2002, China accounted for 4% of the global economy, but represented 16% in 2018. China was responsible for 10% of global manufacturing in 2002, but 39% in 2018; for trade (imports and exports), the respective figures for China’s share were 5% and 13%; and for tourism, 5% and 18%.

Further, since the 2003 Sars outbreak, the share of Chinese and the other Asia-Pacific airlines in terms of global RPKs has gone from 27% to 35%. In 2002, Chinese domestic flights accounted for 12% of total Asia-Pacific RPKs, but, last year, this proportion stood at 28%. And data from China for January shows a sharper fall in passenger numbers (both domestic and international) during the first month of the Covid-19 outbreak than the fall during the first month of the Sars outbreak. On January 31, 2020, daily passenger numbers in China were some 40% down on those for February 11, 2019. The data for February (2020) indicates a drop of about 60% passenger numbers, in compared with February last year.

“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,” warned De Juniac. “We estimate that global traffic will be reduced by 4.7% by the virus, which could more than offset the growth we previously forecast and cause the first overall decline in demand since the Sars crisis of 2003. 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.”

Naturally, after Chinese airlines themselves, other Asia-Pacific airlines are the ones with the greatest exposure to Chinese markets. Non-Chinese Asia-Pacific airlines get 9% of their base revenues from international Chinese traffic, and 59% from non-Chinese international Asia-Pacific traffic. The second- most-exposed group of airlines comprises airlines from the Middle East, which get 3% of their base revenues from international Chinese traffic and 46% from non-Chinese international Asia-Pacific traffic. The respective figures for Africa are 5% and 7%, and for Europe, 2% and 10%. (Chinese airlines get 21% of their base revenues from international Chinese traffic and 79% from domestic Chinese traffic.)

The least affected regions are North America and Latin America. Only 1% of the base revenues of North American carriers come from international Chinese traffic and 6% from non-Chinese international Asia-Pacific traffic. For Latin American airlines, the figures are even lower: 0.2% and 1% respectively.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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