IATA Says COVID-19 Could Cause First Demand Decline Since 2008

Bruce Parkinson, Open Jaw

IATA says global airline traffic could be reduced by 4.7% by the COVID-19 virus outbreak, which would more than offset the growth the organization previously forecast and cause the first overall decline in demand since the Global Financial Crisis of 2008-09.

“These are challenging times for the global air transport industry,” said Alexandre de Juniac, IATA’s Director General and CEO. “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,” de Juniac added.

The airline association says its initial assessment of the impact of the outbreak shows a potential 13% full-year loss of passenger demand for carriers in the Asia-Pacific region. 

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 US$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 US$12.8 billion lost in the China domestic market alone.

In the same scenario, carriers outside Asia-Pacific are forecast to bear a revenue loss of US$1.5 billion, assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to US$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.

IATA says its 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.

“It is premature to estimate what this revenue loss will mean for global profitability. We don’t yet know exactly how the outbreak will develop and whether it will follow the same profile as SARS or not,” IATA said in a statement. “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.”

Bruce Parkinson

Bruce Parkinson Editor-in-Chief

An observer and analyst of the Canadian and international travel industries for over 25 years, Bruce uses the pre-dawn hours to prepare a daily news and information package to keep industry members up to date.

Leave a Comment...


(will not be published)