The International Air Transport Association (IATA) predicts that Coronavirus outbreak (COVID-19) will likely result in a whopping US$27.8 billion loss for Asia-Pacific Airlines as demand falls due to travel restrictions.
COVID-19 has seen some countries blocking travellers from Asia as a precaution measures against the highly contagious disease which has claimed many lives in China.
China is arguably the largest contributor of outbound tourists and was at some time predicted to contribute more than 200 million outbound tourists in 2020.
According to UNWTO, Chinese tourists were also among the highest spenders globally with the figure expected to rise.
However, in light of COVID-19 induced travel ban, IATA is of the view that this will affect airlines in the region as well as globally due to China’s huge contribution to the tourism sector.
In its statement, IATA said its assessment of the impact of COVID-19 will be about 8.2% contraction in demand levels with China affected the most.
“Considering that growth for the region’s airlines was forecast to be 4.8%, the net impact will be an 8.2% full-year contraction compared to 2019 demand levels.
“In this scenario, that would translate into a $27.8 billion revenue loss in 2020 for carriers in the Asia-Pacific region—the bulk of which would be borne by carriers registered in China, with $12.8 billion loss in the China domestic market alone.
“In the same scenario, carriers outside Asia-Pacific are forecast to bear a revenue loss of $1.5 billion, assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to $29.3 billion (5% lower passenger revenues compared to what IATA forecast in December) and represent a 4.7% hit to global demand.
“In December, IATA forecast global RPK growth of 4.1%, so this loss would more than eliminate expected growth this year, resulting in a 0.6% global contraction in passenger demand for 2020,” airlines association.
According to IATA, these estimates are based on a scenario where COVID-19 has a similar V-shaped impact on demand as was experienced during SARS. That was characterized by a six-month period with a sharp decline followed by an equally quick recovery. In 2003, SARS was responsible for the 5.1% fall in the RPKs carried by Asia-Pacific airlines.
The estimated impact of the COVID-19 outbreak also assumes that the centre of the public health emergency remains in China. If it spreads more widely to Asia-Pacific markets then impacts on airlines from other regions would be larger.
IATA said that it is premature to estimate what this revenue loss will mean for global profitability, adding that “We don’t yet know exactly how the outbreak will develop and whether it will follow the same profile as SARS or not.
“Governments will use fiscal
and monetary policy to try to offset the adverse economic impacts.
Some relief may be seen in lower fuel prices for some airlines,
depending on how fuel costs have been hedged,” read the
IATA’s director general and chief executive officer Alexandre de Juniac said “These are challenging times for the global air transport industry. 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% 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,” he said.