Coronavirus may erase $29 bn from airlines’ revenue, says IATA

February 21, 2020: The outbreak of the Coronavirus threatens to slash $29 billion of this year's revenue for global airlines, mostly Chinese carriers, as travel crashes worldwide, according to the International Air Transport Association (IATA). 

The trade group for the airlines said that the virus causing COVID-19 has the potential for causing a 13 percent decline in demand for Asian carriers this year. The contraction comes at a time when Asian airlines' sales had been growing.

In the same scenario, carriers outside Asia-Pacific are forecast to bear a revenue loss of $1.5 billion, assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to $29.3 billion (5 percent lower passenger revenues compared to what IATA forecast in December) and represent a 4.7 percent hit to global demand.

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 percent fall in the RPKs carried by Asia-Pacific airlines.

The estimated impact of the COVID-19 outbreak also assumes that the center 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.

It is premature to estimate what this revenue loss will mean for global profitability. IATA doesn’t know exactly how the outbreak will develop and whether it will follow the same profile as SARS or not. 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. Airlines are following the guidance of the World Health Organization (WHO) and other public health authorities to keep passengers safe, the world connected, and the virus contained. 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 percent by the virus, which could 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 would translate into lost passenger revenues of $29.3 billion. 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,” said Alexandre de Juniac, IATA’s director general and CEO.