As if the news wasn’t bad enough for global airlines, the industry’s top trade group, the International Air Transport Association (IATA), said Thursday (5 March), that carriers could see as much as US$113 billion in lost revenues for this year alone if the COVID-19 coronavirus continues its relentless march across the planet. The numbers are akin to those seen during the 2008-2009 financial crisis that gripped the world. IATA officials were in Singapore for a two-day “Aviation Resilience and Health Workshop” that attracted 140 attendees from around Asia representing various segments of the aviation industry, government, and health professionals.
IATA, in its capacity as the main lobbying force for the industry, has been pushing governments to help airlines weather the viral storm that has killed more than 3,000 people, mainly in China, and infected almost 100,000. The association, in an earlier warning, said airlines could lose up to US$30 billion, but that figure is now far too low and was based mainly on the virus being confined to markets associated with China. IATA now sees 2020 global revenue losses for the passenger business of between US$63 billion and US$113 billion because of its wider spread to the US and Europe. No estimates are yet available for the impact on cargo operations.
Brian Pearce, IATA’s chief economist, said “just looking at the data of what has happened in the past, we see a low point at around three months and then see it recover after six months…the global nature of this is we’re seeing outbreaks at a later stage and so that could continue longer”. He also said “even if we see the COVID-19 have the same impact as SARS with a recovery after six to nine months”, the effect on the aviation world will be much greater because the Chinese market is larger by orders of magnitude than it was when SARS hit in 2002-2003. “This is a serious cash-flow shock to Asia Pacific airlines,” Pearce added. “If we look at forward bookings, we’ve already seen some sharp declines. We face a lot of uncertainties. We are really not sure of the extent of the spread.”
The association said airline shares have fallen nearly 25 percent since the outbreak began and said its new outlook is based on two scenarios that include a “limited spread” and an “extensive spread”.
Under the limited spread scenario, IATA included 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). The markets accounted for in this scenario and their anticipated fall in passenger numbers, due to COVID-19, as are as follows: China (-23 percent), Japan (-12 percent), Singapore (-10 percent), South Korea (-14 percent), Italy (-24 percent), France (-10 percent), Germany (-10 percent), and Iran (-16 percent). Additionally, Asia (excluding China, Japan, Singapore and South Korea) would be expected to see an 11 percent fall in demand. Europe (excluding Italy, France and Germany) would see a 7 percent fall in demand and Middle East (excluding Iran) would see a 7 percent fall in demand.
Globally, this fall in demand translates to an 11 percent 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, IATA said.
Under the “extensive spread” scenario, IATA said they applied similar methodology but to all markets that currently have 10 or more confirmed COVID-19 cases (as of 2 March). The outcome is a 19 percent loss in worldwide passenger revenues, which equates to US$113 billion. Financially, that would be on a scale equivalent to what the industry experienced in the global financial crisis.
“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 US$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.”
JANUARY PASSENGER DEMAND FALLS
IATA’s latest data for global airlines shows that global passenger traffic for January 2020 (measured in total revenue passenger kilometres or RPKs) climbed 2.4 percent compared to January 2019, but that figure was down from 4.6 percent year-over-year growth for the prior month and is the lowest monthly increase since April 2010, at the time of the volcanic ash cloud crisis in Europe that led to massive airspace closures and flight cancellations. January capacity (available seat kilometres or ASKs) increased by 1.7 percent. Load factor climbed 0.6 percentage point to 80.3 percent. “January was just the tip of the iceberg in terms of the traffic impacts we are seeing owing to the COVID-19 outbreak, given that major travel restrictions in China did not begin until 23 January. Nevertheless, it was still enough to cause our slowest traffic growth in nearly a decade,” said IATA’s de Juniac,
January international passenger demand rose 2.5 percent compared to January 2019, down from 3.7 percent growth the previous month. With the exception of Latin America, all regions recorded increases, led by airlines in Africa and the Middle East that saw minimal impact from the COVID-19 outbreak in January. Capacity climbed 0.9 percent, and load factor rose 1.2 percentage points to 81.1 percent.
Asia-Pacific airlines’ January traffic climbed 2.5 percent compared to the year-ago period, which was the slowest outcome since early 2013 and a decline from the 3.9 percent increase in December. Softer GDP growth in several of the region’s key economies was compounded by COVID-19 impacts on the international China market. Capacity rose 3 percent and load factor slid 0.4 percentage point to 81.6 percent.
European carriers saw January demand climb just 1.6 percent year-to-year, down from 2.7 percent in December. Results were impacted by slumping GDP growth in leading economies during the 2019 fourth quarter plus flight cancellations related to COVID-19 in late January. Capacity fell 1 percent, and load factor lifted 2.1 percentage points to 82.7 percent.
Middle Eastern airlines posted a 5.4 percent traffic increase in January, the fourth consecutive month of solid demand growth, reflecting strong performance from larger Europe-Middle East and Middle East-Asia routes, which were not significantly impacted by route cancellations related to COVID-19 at that time. Capacity increased just 0.5 percent, with load factor jumping 3.6 percentage points to 78.3 percent.
North American carriers’ international demand rose 2.9 percent compared to January a year ago, which represented a slowdown from the 5.2 percent growth recorded in December, although there were no significant flight cancellations to Asia in January. Capacity climbed 1.6 percent, and load factor grew by 1 percentage point to 81.7 percent.
Latin American airlines experienced a 3.7 percent demand drop in January compared to the same month last year, which was a further deterioration compared to a 1.3 percent decline in December. Traffic for Latin American carriers has now been particularly weak for four consecutive months, reflecting continued social unrest and economic difficulties in a number of countries in the region unrelated to COVID-19.
African airlines’ traffic climbed 5.3 percent in January, up slightly from 5.1 percent growth in December. Capacity rose 5.7 percent, however, and load factor slipped 0.3 percentage point to 70.5 percent.
AIR CARGO DEMAND
IATA also released data for cargo traffic showing that demand, measured in cargo tonne kilometres (CTKs), decreased by 3.3 percent in January 2020, compared to the same period in 2019. “January marked the tenth consecutive month of year-on-year declines in cargo volumes. The air cargo industry started the year on a weak footing. There was optimism that an easing of US-China trade tensions would give the sector a boost in 2020. But that has been overtaken by the COVID-19 outbreak, which has severely disrupted global supply chains, although it did not have a major impact on January’s cargo performance. Tough times are ahead. The course of future events is unclear, but this is a sector that has proven its resilience time and again,” said IATA’s de Juniac.
Cargo capacity, measured in available cargo tonne kilometres (ACTKs), rose by 0.9 percent year-on-year in January 2020. Capacity growth has now outstripped demand growth for 21 consecutive months. It is unlikely that the COVID-19 outbreak had very much to do with January’s weak performance. Lunar New Year in 2020 was earlier than in 2019. This skewed 2020 numbers towards weakness as many Chinese manufacturers would be closed for the holiday period. February performance will give a better picture of how COVID-19 is impacting global air cargo.
Airlines in Asia-Pacific and Europe suffered sharp declines in year-on-year growth in total air cargo volumes in January 2020, while North American and Middle East carriers experienced a more moderate decline. Latin America and Africa were the only regions to record growth in air freight demand compared to January 2019.
Asia-Pacific airlines saw demand for air cargo contract by 5.9 percent in January 2020, compared to the year-earlier period. This was the sharpest drop in freight demand of any region for the month. Capacity growth was flat. Seasonally-adjusted cargo demand rose slightly however, following the thawing of US-China trade relations. The impact from COVID-19 is expected to affect February’s performance.
North American airlines saw demand decrease by 1.3 percent in January 2020, compared to the same period a year earlier. Capacity increased by 3.4 percent. Seasonally-adjusted cargo demand rose slightly however, amid a more supportive operating environment and following the thawing of US-China trade relations. North American airlines could be affected by COVID-19 related reduced traffic to China.
European airlines posted a 3.7 percent decrease in cargo demand in January 2020 compared to the same period a year earlier – more than double the 1.3 percent drop in year-on-year demand in December. Seasonally-adjusted demand also dropped sharply, disrupting the positive trend that started mid-2019. Capacity decreased by 3 percent year-on-year.
Middle Eastern airlines’ cargo volumes decreased 1.4 percent in January 2020 compared to the year-ago period. Capacity increased by 2.9 percent. Seasonally-adjusted freight volumes ticked down in January, but a modest upwards trend has been sustained. However, given the Middle East’s position connecting trade between China and the rest of the world, the region’s carriers have significant exposure to the impact of COVID-19 in the period ahead.
Latin American airlines experienced an increase in freight demand in January 2020 of 1.4 percent compared to January 2019 – reversing the 2.5 percent decrease in December. Seasonally-adjusted freight volumes in the region also ticked upwards, underpinned by new route connections, which is a positive development for the region’s carriers. Capacity increased by 2.4 percent year-on-year.
African carriers posted the fastest growth of any region for the 11th consecutive month in January 2020, with an increase in demand of 6.8 percent compared to the same period a year earlier. Growth on the smaller Africa-Asia trade lanes (up 12.4 percent in 2019) contributed to the positive performance. Capacity grew 5.9 percent year-on-year.