“This Is A Crisis:” IATA Says Relief Measures Needed For Airlines
Bruce Parkinson, Open Jaw
IATA has updated its analysis of the financial impact of the novel coronavirus (COVID-19) public health emergency on the global air transport industry. It’s not a pretty picture.
IATA now sees 2020 global revenue losses for the passenger business of between US$63 billion (in a scenario where COVID-19 is contained in current markets with over 100 cases as of 2MAR) and US$113 billion (in a scenario with a broader spreading of COVID-19).
“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,” said Alexandre de Juniac, IATA’s Director General and CEO.
“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.”
IATA’s previous analysis (issued 20FEB) put lost revenues at US$29.3 billion based on a scenario that would see the impact of COVID-19 largely confined to markets associated with China. Since that time, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China.
Financial markets have reacted strongly. Airline share prices have fallen nearly 25% since the outbreak began, some 21 percentage points greater than the decline that occurred at a similar point during the SARS crisis of 2003. IATA says to a large extent, this fall already prices in a shock to industry revenues much greater than in its previous analysis.
To take into account the evolving situation with COVID-19, IATA estimated the potential impact on passenger revenues based on two possible scenarios:
Scenario 1: Limited Spread
This scenario includes markets with more than 100 confirmed COVID-19 cases (as of 3MAR) experiencing a sharp downturn followed by a V-shaped recovery profile. It also estimates falls in consumer confidence in other markets (North America, Asia Pacific and Europe).
The markets accounted for in this scenario and their anticipated fall in passenger numbers, due to COVID-19, as are as follows: China (-23%), Japan (-12%), Singapore (-10%), South Korea (-14%), Italy (-24%), France (-10%), Germany (-10%), and Iran (-16%). Additionally, Asia (excluding China, Japan, Singapore and South Korea) would be expected to see an 11% fall in demand. Europe (excluding Italy, France and Germany) would see a 7% fall in demand and Middle East (excluding Iran) would see a 7% fall in demand.
Globally, this fall in demand translates to an 11% worldwide passenger revenue loss equal to US$63 billion. China would account for some US$22 billion of this total. Markets associated with Asia (including China) would account for US$47 billion of this total.
Scenario 2: Extensive Spread
The second scenario applies a similar methodology but to all markets that currently have 10 or more confirmed COVID-19 cases. The outcome is a 19% loss in worldwide passenger revenues, which equates to US$113 billion. Financially, IATA says that would be on a scale equivalent to what the industry experienced in the Global Financial Crisis.
Africa and Latin America/Caribbean regions are not explicitly included in this market-based analysis, because there are currently no countries in either region with at least 10 COVID-19 cases.
There is one significant mitigating factor, and that the price of oil, which has fallen significantly since the beginning of the year. IATA says this could cut costs up to US$28 billion on the 2020 fuel bill (on top of those savings which would be achieved as a result of reduced operations) which would provide some relief but would not significantly cushion the devastating impact that COVID-19 is having on demand.
The IATA leader says the industry is going to need some help.
“Many airlines are cutting capacity and taking emergency measures to reduce costs. Governments must take note. 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,” said de Juniac.
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.