Global Airline industry could take a hit of as much as $113 billion on account of Coronavirus: - IATA

The International Air Transport Association (IATA) in a report published on 5 March 2020 has warned that the global airline industry could lose as much as $113 billion in passenger revenues, on account of the spread of the Coronavirus. The virus whose scare has seen thousands of cancellations till now has forced many airline operators to cancel their flights to China and other neighbouring countries who have been the hardest hit. Till now, the epidemic has killed more than 3,300 people globally and is showing no signs of abating, with health authorities world over grappling to find ways to contain this spread. IATA in its report, further warns that if the spread of the virus is not contained soon, we could see a fall in profitability of the global airline industry far beyond what had been witnessed during the SARS epidemic.

The biggest impact of the virus is on China, where parts of the country are in virtual lockdown. Airports across the world are screening passengers who are travelling out of China or other countries where more than 100 cases have been reported. As per IATA estimates, the share of revenue of the countries reporting more than 100 cases is nearly 27 per cent of the global airline industry’s revenues as on 2 March 2020, which is much higher than what it was during the SARS epidemic.

In the worst-case scenario, should there be an extensive spread of the virus, the association estimates that the European markets of Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden and the United Kingdom would be the hardest hit, losing as much as 24 per cent of its passenger base, resulting in a $37.3 billion loss in revenues. The next hardest hit will be the Asia & Oceania markets of Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand and Vietnam who could lose as much as 23 per cent of their passenger numbers leading to a revenue loss of nearly $ 49.7 billion for the industry in the region. The Middle Eastern markets of Bahrain, Iraq, Iran, Kuwait, Lebanon and the United Arab Emirates could lose as much as 23 per cent of their passenger base, leading to revenue losses of $ 4.9 billion, North American markets of Canada and the United States could lose up to 10 per cent of their passenger base leading to revenue losses of $21.1 billion, and finally, the rest of APAC countries, Middle Eastern Countries and European countries could lose as much as 9 per cent of their passenger base each leading to a combined revenue loss of $16.5 billion.

Several airline companies have come out with profit warnings in the past few days on account of the virus outbreak. IAG, the largest airline consortium of Europe and owner of British Airways, Iberia and Aer Lingus has not provided any guidance for the year till now, while for previous years it had issued earnings forecasts by this time of the year. Low-cost operator EasyJet reported a significant drop in demand in its European operations, especially those going in and coming out of northern Italy. Finland's national airlines Finnair has withdrawn its 2020 capacity growth projections while warning of a significant drop in its operating profits for the year, stating further that cost-cutting measures including temporary laying off the staff are also under consideration. Irish Airline company Ryanair has warned that its first-quarter earnings could see a meaningful impact because of the virus outbreak and is expecting a drop on 10 per cent in its bookings for the months of April and May 2020. The biggest causality of this epidemic in Europe was of British regional airline Flybe which fell into administration on 4 March 2020, after it was unable to get a government loan to continue with its operations amidst dwindling passenger bookings due to the scare from the virus. On the other side of the Atlantic, Budget airline Southwest Airlines stated on Tuesday 3 March 2020 that it has been witnessing a significant drop in customer demand as well an increase in the number of cancellations of existing bookings. JetBlue and United Airlines have also cut down on their numbers of flights on account of fall in demand and flight attendants are being asked to take unpaid leaves.

The virus scare has also seen the shares of major airlines being beaten down severely in their respective stock exchanges. In the United States, the stock of American Airlines dropped by nearly 13 per cent in trading on Thursday to close at $16.04. Delta Airlines lost 7 per cent of its share price value to close at $45.01, the shares of United Airlines dropped 13 per cent in its value, and Southwest Airlines lost nearly 3.6 per cent of its value in trading on 5 March 2020. On the London Stock Exchange, EasyJet Plc lost 4.44 per cent of its share value on the day followed by Wizz Air Holdings Plc, which lost 3.92 per cent of its share value. The stock of International Consolidated Airlines Group SA (IAG) lost 5.34 per cent of its value on the same day. Similar is also the state of other major airlines listed on Asian and European markets, with no immediate signs of respite coming from any quarter.

IATA, however, forecasts that a marginally positive impact on the bottom-line of airline companies will come from falling oil prices. The association estimates that the industry would be able to save as much as $28 billion in fuel costs during 2020 without considering fuel-saving measures taken by the airlines on an individual level. Given the current adverse impact being witnessed by the world economy on account of the Coronavirus outbreak, further weakness in crude prices cannot be ruled out, which could provide further respite to the airline industry.

The airline industry was not in a strong footing to start with when it entered 2020. Slowdown and overcapacity concerns had gripped the industry for most of the previous year, and the grounding of the Boeing 737 MAX model of aircraft had severely impacted the capacity utilization dynamics in the industry. Improving economic conditions in Europe, China and the United States at the commencement of 2020 brought new hope for the industry, while some concerns still persisted. This undesired threat of the epidemic is a major blow to the industry. Individual cost-cutting measures taken by airline companies can only help them stay in the black for a few months. The longer the epidemic continues, the more the number of companies will be pushed into the red.

Currently, the only hope the industry lies with the healthcare authorities to contain the spread of the virus as soon as possible. Losses are inevitable across the industry for the first quarter of 2020; gradual recovery can be expected from the second quarter onwards. The recovery in the rest of the world, however, will be the determining factor that will inject growth into the sector. Major efforts are being made by global financial institutions, central banks and governments currently in this regard.