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Airlines may suffer $100b loss
Last Updated: 2020-03-12 09:33 | China Daily Global
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Outbreak forces tightening of travel plans and widespread flight cancellations across globe

The aviation industry is facing increasing turbulence in the wake of the global coronavirus outbreak, with industry experts estimating potential revenue losses of well above $100 billion amid widespread flight cancellations.

"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, director-general and CEO of the International Air Transport Association, in a statement issued last week.

He described the rapid shift in the industry caused by COVID-19 as "almost without precedent".

In its most recent analysis, the association is estimating the global airline passenger business to lose $63 billion to $113 billion, depending on how widely the virus spreads.

In a report published less than three weeks ago by the IATA, the estimated loss stood at less than $30 billion, with the association assuming only China-related market impact.

Since then, the outbreak has spread to more than 100 countries, with more than 110,000 confirmed cases. South Korea, Italy, Iran and Japan are among the most affected countries outside China, although the growth of new cases in China has seen a continuing decline.

Tightened policies

Governments around the world are tightening travel policies as both businesses and individuals grow more cautious about flying-two trends that pose a threat to the aviation industry.

While the World Health Organization advised against "the application of travel and trade restrictions to countries experiencing COVID-19 outbreaks" and claimed that travel bans are "usually not effective in preventing the importation of cases", the United States, Russia, Japan, India, Australia, Israel, Saudi Arabia, Democratic People's Republic of Korea and Republic of Korea are among countries that have imposed restrictions on travel to and from other countries.

Italy decided on Monday to extend its lockdown zone-initially included only the Northern Lombardy region-to the entire country. Travel restrictions, ban on public events, closure of schools and public spaces are affecting all 60 million residents in the country.

Besides governments, major global businesses are encouraging employees not to travel.

According to a recent survey by the Global Business Travel Association published on Tuesday, more than 40 percent of its member companies have canceled or suspended all international travel, and 95 percent have canceled or suspended most or all business trips to China. The trend is similar in terms of domestic travel, the association said.

Travel restrictions

US technology giants Amazon, Google and Salesforce have all restricted unnecessary cross-border travel. Switzerland's Nestle and France's L'Oreal also have advised employees to postpone travel for a few weeks.

IBM decided to halt all domestic travel for internal meetings and all external events with over 1,000 attendees until the end of March. Microsoft, Google and Facebook have canceled spring industry conferences, all of which draw thousands of attendees annually.

South by Southwest, the annual music, film and technology and conference that attracted more than 400,000 people from 106 countries to Austin, Texas, last year, was canceled this year for the first time in its 32-year history.

The GBTA's survey indicated that 86 percent of its supplier companies saw the coronavirus having a significant or moderate impact on their revenues, with airlines and hospitality providers taking the biggest hit.

The association expects the outbreak to cost the industry $821 billion in 2020.

The coronavirus "is fundamentally affecting the way many companies are now doing business" and is significantly impacting the business travel industry's bottom line," said Scott Solombrino, GBTA's chief operating officer and executive director.

"As the virus continues to spread across the world, business travel is slowing at an alarming rate. The impact to the business travel industry-and to the broader economy-cannot be underestimated," he said.

The IATA estimated a 19 percent drop in worldwide passenger revenues in the industry once the outbreak reaches a global scale. Some of the most affected markets, including East Asia, Western Europe and the Middle East, are losing more than 20 percent of their passengers, while Canada and the United States are facing a 10 percent decrease, said the association.

"Many airlines are cutting capacity and taking emergency measures to reduce costs," said de Juniac, calling the current situation as "a crisis".

US-based JetBlue said it is cutting capacity by 5 percent in the near term. German airline Lufthansa said it would cancel 7,100 flights in Europe, reducing 25 percent of its capacity.

Cutting capacity

United Airlines said it will reduce 10 percent of its US and Canadian flights and 20 percent of international ones in April, with a cut of similar scale in May.

United already has seen a 100 percent decline in near-term demand to China and approximately 75 percent decline on the rest of transpacific routes, according to a company statement.

The company postponed an investor conference set for March 5, saying it "does not believe it is practical to expect that it can have a productive conversation focused on its long-term strategy".

Air New Zealand is withdrawing its previously issued full-year earnings guidance for 2020, citing "increased uncertainty surrounding the duration and scale of the COVID-19 outbreak".

Revenues to take hit

US airline Southwest Airlines told investors its revenues will take a $200 million to $300 million hit.

UK airline Flybe filed for bankruptcy last week, with its leadership admitting that the impact of the outbreak is part of the reason.

The way the outbreak was weighing on airlines "has a 9/11-like feel", said Gary Kelly, CEO of Southwest Airlines, on CNBC. It was "more fear" than an economically driven issue for travel in both situations, he said.

"Airlines are doing their best to stay afloat as they perform the vital task of linking the world's economies," said de Juniac.

British Airways, Virgin Atlantic and Hong Kong-based Cathay Pacific all have offered unpaid leave to their staff, with around 25,000 from Cathay taking the offer.

Airlines are among the worst performers in the stock market, with share prices collectively having fallen nearly 25 percent since the outbreak began, according to IATA.

"These are extraordinary times," said de Juniac. He suggested that the industry needs "consideration for relief on taxes, charges and (airport) slot allocation" as worldwide governments look to stimulus measures.

(Editor:fubo)

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Airlines may suffer $100b loss
Source:China Daily Global | 2020-03-12 09:33
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