Asian air travel is on course to shrink for the first time since 2003 as the deadly coronavirus outbreak could deprive the region’s airlines of US$27.8 billion (HK$216.3 billion) in revenues, according to the global airline trade body.
The International Air Transport Association (IATA) unveiled its first comprehensive forecast on Thursday showing the negative effect the disease, known as Covid-19, would have on air travel.
Asia-Pacific airlines would suffer the most, experiencing a 13 per cent decline in full-year passenger demand. As large numbers of people opt not to travel to and within the region, major airlines like Cathay Pacific, Singapore Airlines and Qantas have been forced to cut their flight schedules, affecting their profitability.
IATA said the worldwide revenue deficit would top US$29.3 billion, with US$12.8 billion shed in the collapsing Chinese domestic market. Mainland carriers lost a combined US$3.1 billion on international flights in 2018, relying on domestic services to prop up their expansionist ambitions.
“These are challenging times for the global air transport industry,” said Alexandre de Juniac, IATA’s director general and CEO. “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.”
He said airlines faced tough choices on cutting back flight schedules or routes outright. Losses would be mitigated by lower fuel costs through reduced flying.
“This will be a very tough year for airlines,” added de Juniac.
IATA’s estimates are based on a “quick recovery”, akin to the resurgence in demand for flights after the 2003 Sars outbreak, which resulted in a sharp decline in air travel for six months. At that time, Sars caused the only annual decline in Asia-Pacific traffic in almost two decades.
IATA said demand for flights in 2020 would likely fall by 4.7 per cent. With its predicted growth of 4.1 per cent last December, global demand is expected to contract by 0.6 per cent.
Of the US$581 billion in passenger revenue that airlines were expected to generate in 2020, according to IATA’s December forecast, the projected loss of US$29.3 billion amounts to a 5 per cent decline.
In Asia, a region that has outpaced all others with its soaring appetite for travel, the impact is more severe. The region is expected to swing from 4.8 per cent growth to a contraction of 8.2 per cent.
Qantas said earlier on Thursday that it would cut flight schedules in Asia by 15 per cent, with the equivalent of 18 aircraft being grounded. The coronavirus outbreak will cost the airline A$150 million (US$100 million) through the end of June.
Air France-KLM warned that the virus would wipe €200 million (US$216 million) off its earnings by April, but was braced for an escalation in losses if China flights did not resume by then. Fellow European airline group Lufthansa said it had grounded 13 jets as a result of halting flights to China.
Singapore Airlines and Cathay Pacific both warned on profits, with each carrier cutting flight schedules to conserve cash.
IATA said it was too early to tell what impact the loss of revenue would mean for airline profitability.
Further highlighting the fragility of its estimates, IATA said the projected impact of Covid-19 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,” the trade body said.
Amid the fallout, China’s air travel market has shrunk from being the third largest to the 25th biggest, behind Portugal. The country’s domestic air travel market has seen capacity slashed by 70 per cent, or 10.4 million seats removed, according to OAG Aviation.
IATA praised Singapore for being the first major jurisdiction to provide financial relief to airlines and the aviation sector with measures worth US$80 million.
“Airlines and governments are in this together,” said de Juniac. “We have a public health emergency, and we must try everything to keep it from becoming an economic crisis. Relief on airport costs will help maintain vital air connectivity. Other governments should take good note and act quickly.”
Hong Kong is expected to follow suit and help the aviation industry when the government unveils its budget next week. IATA’s calls for Hong Kong to help airlines during the months of civil unrest, as airlines cut schedules amid visitor concerns over the protests, had fallen on deaf ears.
Numbers don‘t lie. Politicians do.