Given the evolution in the spread of COVID-19 the International Air Transport Association (IATA) has risen its assessment on 2020 global revenue losses for the passenger business from $29.3Bn to $63Bn (in a scenario where COVID-19 is contained in current markets with over 100 cases as of 2 March) and considers $113Bn loss (in a scenario with a broader spreading of COVID-19). No estimates are yet available for the impact on cargo operations.
Since the first estimation released on 20th February the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China.
“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. 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.
“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 Alexandre de Juniac, IATA’s Director General and CEO.
Airlines’ shares price on the fall
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. To a large extent, this fall already prices in a shock to industry revenues much greater than our previous analysis.
Forecast for two different scenarios
The evolving situation with COVID-19, has made IATA to estimate the potential impact on passenger revenues based on two possible scenarios: limited spread and extensive spread.
1.- Limited spread
This scenario includes markets with more than 100 confirmed COVID-19 cases (as of 2 March) 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).
China is expected to experience a fall in passenger flows at a -23%, followed by , 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% decrease in demand and Middle East (excluding Iran) would experience a 7% fall in demand.
Globally, the mentioned sink in demand will translate into an 11% worldwide passenger revenue loss equal to $63 Bn. China would account for some $22 Bn of this total. Markets associated with Asia (including China) would account for $47 Bn of this total.
2.- Extensive spread: revenues cut equivalent to that of the global financial crisis
To calculate the revenues loss in the extensive spread scenario IATA has applied a similar methodology but in this case to all markets that currently have 10 or more confirmed COVID-19 cases (as of 2nd March).
The outcome is a 19% loss in worldwide passenger revenues, which equates to $113 Bn. Financially, that would be on a scale equivalent to what the industry experienced in the Global Financial Crisis.
Lower oil prices providing some relief
Oil prices have fallen significantly (-$13/barrel Brent) since the beginning of the year. This could cut costs up to $28Bn on the 2020 fuel bill (on top of those savings which would be achieved as a result of reduced operations).
The lower prices of the fuel-oil would provide some relief but not enough to significantly cushion the devastating impact that COVID-19 is having on demand. Besides, it should be noted says IATA, that hedging practices will postpone this impact for many airlines.
Image over the headline.- COVID-19 airplane. Eastwind. The base photo used for this composition was taken and shared through Wikimedia Commons by Jsylee through. To watch the original photo click here
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