COVID-19 cuts aviation demand and revenues: IATA

The International Air Transport Association (IATA) has announced that its initial assessment of the impact of Novel Coronavirus 2019 outbreak (COVID-19) shows a potential 13 per cent full-year loss of passenger demand for carriers in the Asia Pacific region.

Considering that growth for the region's airlines was forecast to be 4.8 per cent, the net impact will be an 8.2 per cent full-year contraction compared to 2019 demand levels.

In this scenario, said IATA, that will translate into a 27.8 billion dollar revenue loss in 2020 for carriers in the Asia Pacific region -- the bulk of which will be borne by carriers registered in China, with 12.8 billion dollars lost in the China domestic market alone.

In the same scenario, carriers outside the Asia Pacific are forecast to bear a revenue loss of 1.5 billion dollars, assuming the loss of demand is limited to markets linked to China.

This will bring total global lost revenue to 29.3 billion dollars (5 per cent lower passenger revenues compared to what IATA forecast in December) and represent a 4.7 per cent hit to global demand.

In December, IATA forecast global revenue passenger kilometres (RPK) growth of 4.1 per cent, so this loss would more than eliminate expected growth this year, resulting in a 0.6 per cent global contraction in passenger demand for 2020.

These estimates are based on a scenario where COVID-19 has a similar V-shaped impact on demand as was experienced during SARS. That was characterised by a six-month period with a sharp decline followed by an equally quick recovery. In 2003, SARS was responsible for the 5.1 per cent fall in the RPKs carried by Asia Pacific airlines.

"The estimated impact of the COVID-19 outbreak also 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 will be larger," said IATA on Thursday (local time).

It is premature to estimate what this revenue loss will mean for global profitability. "We do not yet know exactly how the outbreak will develop and whether it will follow the same profile as SARS or not," it added.

Governments will use fiscal and monetary policy to try to offset the adverse economic impacts. Some relief may be seen in lower fuel prices for some airlines, depending on how fuel costs have been hedged.

"These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority," said IATA's Director General and CEO Alexandre de Juniac.

Airlines are following the guidance of the World Health Organisation (WHO) and other public health authorities to keep passengers safe, the world connected, and the virus contained, he said. 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.

"We estimate that global traffic will be reduced by 4.7 per cent by the virus, which can more than offset the growth we previously forecast and cause the first overall decline in demand since the global financial crisis of 2008-09. And that scenario will translate into lost passenger revenues of 29.3 billion dollars," said de Juniac.

"Airlines are making difficult decisions to cut capacity and in some cases routes. Lower fuel costs will help offset some of the lost revenue. This will be a very tough year for airlines," he said.

IATA represents some 290 airlines comprising 82 per cent of global air traffic.

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