The International Air Transport Association (IATA) has done its sums. The epidemic of new coronavirus 2019 (COVID-19) is expected to have a severe impact on aviation activity worldwide, with the epicentre of the crisis obviously being in Asia.
The initial assessment of the impact of COVID-19 shows a potential loss of 13 % in passenger demand for Asia-Pacific carriers over a full year. Taking into account IATA's earlier forecast of 4.8% passenger growth for Asian airlines in 2020, the net impact would show a contraction of 8.2 % on a full year basis compared to 2019 demand levels. This would translate into a revenue loss of $27.8 billion in 2020 according to IATA for carriers in the Asia-Pacific region. The Chinese companies alone would represent 46% of this loss, with an estimated figure of 12.8 billion dollars for the Chinese domestic market alone.
On the same IATA assumption, carriers outside the Asia-Pacific region are expected to record a loss of revenue of 1.5 billionThis is assuming that the fall in demand is limited solely to markets linked to China. This would translate into total revenue losses of $29.3 billion for all airlines worldwide. Compared with the IATA forecasts published in December, this would correspond to a 5 % drop in passenger revenues, or a 4.7 % impact on global demand. In December, IATA forecast global growth of 4.1 % in revenue/passenger/km. The forecast contraction in global air transport growth in 2020 should therefore be close to -0.6 %.
These estimates are based on a scenario in which COVID-19 would have a V-shaped impact on demand, similar to that experienced by theSARS epidemic. This scenario was characterised by a six-month period of sharp decline followed by an equally rapid recovery. In 2003, SARS was responsible for a 5.1 % drop in revenue/passenger/km for airlines in the Asia-Pacific region.
The estimated impact of the COVID-19 outbreak also assumes that the centre of the public health emergency remains in China. If it were to spread more widely to Asia-Pacific markets, the repercussions on airlines in other regions would be greater. This is already the case with a real health crisis involving a cruise ship in Japan but also to Singapore and partly in Thailandat Vietnam and in Malaysia.
IATA believes, however, that it is premature to estimate the impact on the industry's profitability this year, as no information is yet available to predict how the epidemic will develop. Governments are already starting to implement fiscal and monetary policies to try to offset the negative economic effects. This is already the case in Singapore and Malaysia, and will soon be the case in Thailand. China should follow suit with a major stimulus plan, once the epidemic has been effectively contained. Lower fuel prices should modestly offset the financial losses.
a very challenging year in the airline industry
" Stopping the spread of the virus is the top priority, underlines Alexandre de JuniacDirector General and CEO of IATA. Airlines are in fact following the advice of the World Health Organisation (WHO) and other public health authorities to ensure passenger safety, to keep the world connected and to keep the virus under control. The sharp fall in demand will have a severe financial impact for airlines most exposed to the Chinese market. We estimate that global traffic will be reduced by 4.7 % by the virus, causing the first global drop in demand since the SARS crisis in 2003. Airlines are often making difficult decisions by reducing capacity and, in some cases, suspending routes. Despite the fall in fuel prices, which will help to offset some of the revenue losses, I predict a very challenging year for the airline industry. "says Alexandre de Juniac.
