Coronavirus could cost the airline industry up to $113 billion globally

Mar 5 2020, 9:19 am

The International Air Transport Association (IATA) — which represents some 290 airlines — has analyzed the financial impact of the novel coronavirus (COVID-19) on the airline industry, and the results are staggering.

The IATA, which represents airlines responsible for 82% of global air traffic, sees global revenue loss for the passenger business falling between $63 billion and $113 billion USD.

Based on estimates found through the evaluation of two possible scenarios — both limited and extensive spread — the IATA’s analysis currently exceeds the estimations the agency found in February, which put lost revenues at $29.3 billion.

That number was based on a scenario that would see COVID-19’s impact largely confined to markets associated with China. It has since become clear that this will not be the case.

Since the time of the first analysis, the virus has spread to over 80 countries and, the association says, bookings have been “severely impacted,” on routes that span beyond China.

In the first considered scenario, which covers “Limited Spread,” markets with more than 100 confirmed cases of the illness as of March 2 were included in analysis.

Those markets, and their anticipated fall in passenger numbers, are as follows: China (-23%), Japan (-12%), Singapore (-10%), South Korea (-14%), Italy (-24%), France (-10%), Germany (-10%), and Iran (-16%).

Further, the association says, Asia, excluding the previously mentioned countries, would be expected to see an 11% fall in demand. Europe, excluding Italy, France and Germany, would see a 7% fall in demand, as would the Middle East, excluding Iran.

This fall in demand would mean an 11% worldwide passenger revenue loss, equal to $63 billion globally. Of that total, China would account for some $22 billion, and markets associated with Asia, including China, would account for $47 billion.

The second scenario considered is “Extensive Spread.”

Using similar methodology, this scenario considers all markets with 10 or more confirmed cases of COVID-19, as of March 2. The outcome in this case is a 19% loss in worldwide passenger revenues, equal to $113 billion.

Financially, the association says, this would be on an equivalent scale to what the airline industry experienced in the Global Financial Crisis.

IATA

“The turn of events as a result of COVID-19 is almost without precedent. In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse. It is unclear how the virus will develop, but whether we see the impact contained to a few markets and a $63 billion revenue loss, or a broader impact leading to a $113 billion loss of revenue, this is a crisis,” Alexandre de Juniac, IATA’s Director General and CEO, said in a release.

Since the beginning of the novel coronavirus outbreak, airline share prices have fallen nearly 25%, which is about 21 percentage points greater than the decline that occurred at a similar point during 2003’s SARS crisis.

“Many airlines are cutting capacity and taking emergency measures to reduce costs. Governments must take note,” de Juniac said. “Airlines are doing their best to stay afloat as they perform the vital task of linking the world’s economies. As governments look to stimulus measures, the airline industry will need consideration for relief on taxes, charges and slot allocation.”

“These are extraordinary times.”

Oil prices have fallen significantly (-$13/barrel Brent) since 2020 began. This, the association says, could cut costs up to $28 billion on the 2020 fuel bill — in addition to whatever savings would be achieved as a result of reduced operations — which would mitigate some of the impact that COVID-19 is having on demand, but not enough to cushion it significantly.

For many airlines, hedging practices — a risk-management strategy which helps to offset losses — will postpone this impact, the association says.

These numbers reflect project revenue loss for the passenger business; there are no estimates available for the impact on cargo operations at this time.