The aviation industry is sure to have a tough year ahead, particularly for airlines with a heavy reliance on the Chinese market.
The spread of the coronavirus will result in the first fall in global air travel in more than a decade, the international airline industry body has predicted.
The International Air Transport Association (Iata) warned that falling passenger demand as a result of the outbreak of the Covid-19 virus would cost the airline industry $29.3bn (£23.7bn) in lost revenues this year.
In its initial assessment of the impact, the organisation said it expected global demand for air travel to fall by 4.7% in 2020, the first overall decline since the global financial crisis in 2008-09.
“Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue,” said Alexandre de Juniac, director general and chief executive of Iata. “This will be a very tough year for airlines.”
The vast majority of the financial impact will hit airlines in the Asia Pacific region, where revenues will fall by $27.8bn, with the bulk borne by carriers registered in China. Iata estimates that losses in China’s domestic market will hit $12.8bn. Carriers outside Asia Pacific are forecast to lose about $1.5bn this year, “assuming the loss of demand is limited to markets linked to China”.
Iata said: “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. 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 characterised by a six-month period with a sharp decline followed by an equally quick recovery.”
De Juniac warned that Iata’s assessment was based on the coronavirus public health emergency not spreading beyond China. “If it spreads more widely to Asia Pacific markets then impacts on airlines from other regions would be larger,” he said.
Iata said it was “premature” to estimate what the revenue loss would mean for the global profitability of the airline industry. Airlines including Qantas and Air France-KLM have cancelled flights to and from China and have warned of weaker demand for travel in Asia. The Franco-Dutch group Air France-KLM expects the Covid-19 outbreak to wipe between €150 and €200m (£130 and £170m) off its earnings.
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Photo Credit: An aircraft prepares for takeoff. Radek Kucharski / Flickr
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