IATA warns of severe revenue impact by COVID-19

As the novel coronavirus continues to spread rapidly, the International Air Transport Association (Iata) has updated its analysis of the financial impact of the COVID-19 crisis, painting a bleak picture of the outbreak’s impact on the global air transport industry.

Previously, Iata estimated that the global air transport industry would lose revenues of $29.3 billion in 2020 due to the coronavirus, based on a scenario that would see the impact of COVID-19 largely confined to markets associated with China.

Since then, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China.

Iata now predicts 2020 revenue losses for the global aviation sector will be $63 billion in a scenario where COVID-19 is contained in current markets and $113 billion in a scenario with a broader spreading of COVID-19.

Financial markets have reacted strongly. Airline share prices have fallen nearly 25 per cent 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.

Scenario 1: Limited Spread

This scenario includes markets with more than 100 confirmed COVID-19 cases (as of March 2) 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 (down 23 per cent), Japan (down 12 per cent), Singapore (down 10 per cent), South Korea (down 14 per cent), Italy (down 24 per cent), France (down 10 per cent), Germany (down 10 per cent), and Iran (down 16 per cent).

Additionally, Asia (excluding China, Japan, Singapore and South Korea) would be expected to see an 11 per cent fall in demand. Europe (excluding Italy, France and Germany) would



see a 7 per cent fall in demand and Middle East (excluding Iran) would see a 7 per cent fall in demand.

Globally, this fall in demand translates to an 11 per cent worldwide passenger revenue loss equal to $63 billion. China would account for some $22 billion of this total. Markets associated with Asia (including China) would account for $47 billion of this total.

Scenario 2: Extensive Spread

This scenario applies a similar methodology but to all markets that currently have 10 or more confirmed COVID-19 cases (as of March 2). The outcome is a 19 per cent loss in worldwide passenger revenues, which equates to $113 billion. Financially, that would be on a scale equivalent to what the industry experienced in the Global Financial Crisis

Africa and Latin America/Caribbean regions are not explicitly included in this market-based analysis, because there are currently no countries in either region with at least 10 COVID-19 cases.

Mitigation

Oil prices have fallen significantly (down $13/barrel Brent) since the beginning of the year. This could cut costs up to $28 billion on the 2020 fuel bill (on top of those savings which would be achieved as a result of reduced operations) which would provide some relief but would not significantly cushion the devastating impact that COVID-19 is having on demand. And it should be noted that hedging practices will postpone this impact for many airlines.

Impact

“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," said Alexandre de Juniac, Iata's director general and CEO.

“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,” he said.