SriLankan Airlines crew
It is getting scary for the airline industry. File picture of SriLankan Airlines' 'mercy flight' that brought back students from Wuhan, China. Image Credit:

London (Bloomberg): The airline industry expects the first annual decline in global passenger demand in 11 years, after tallying up the initial impact of the thousands of flights canceled because of the coronavirus outbreak in China.

The estimate shaves about 4.7 percentage points off of a passenger-traffic forecast issued just two months ago, with almost all of the impact in the Asia-Pacific region, according to the International Air Transport Association. That may be conservative.

The projections assume the losses will be limited to markets linked to China.

“This will be a very tough year for airlines,” Alexandre de Juniac, IATA’s director-general, said. “Airlines are making difficult decisions to cut capacity, and in some cases routes.”

The drop would be the first overall decline since the financial crisis of 2008-09. Global passenger demand is now seen contracting by 0.6 per cent this year, compared with a December forecast for 4.1 per cent growth, IATA said.

Keep them grounded

Airlines have scrapped flights to China and about 80 per cent of the country’s domestic fleet is grounded because of the epidemic that is centered in Hubei province. About 1.7 million seats were dropped from China services from January 20 to February 17 by global carriers, according to OAG Aviation Worldwide. Meanwhile, Chinese airlines cut 10.4 million seats domestically.

Tourism and corporate travel - with events even being canceled outside of China - will not pick up in the short term

- Alexander Sehmer at Falanx Assynt

China’s economy was likely running at just 40-50 per cent capacity last week, after efforts to contain the spread closed stores, brought factories to a halt and triggered a virtual shutdown of the airline industry. Employers have encouraged people to stay home, shopping malls and restaurants are empty, and amusement parks and theaters are closed.

Warning signals

While the impact will be felt strongest in China, carriers outside of Asia-Pacific would lose about $1.5 billion in revenue, IATA said. A warning from Air France-KLM, which said the outbreak will wipe as much as 200 million euros ($216 million) from earnings, hammered home the point on Thursday.

“Even as we see the number of new reported cases of coronavirus in China fall each day, airlines will continue to count the cost of the coronavirus outbreak for some time yet,” Alexander Sehmer, director of geopolitical intelligence at consultant Falanx Assynt, said. “For now, people and companies are extremely wary of the potential risks of traveling.

“Therefore, tourism and corporate travel - with events even being canceled outside of China - will not pick up in the short term.”

Emergency measures for China airlines
While it’s too early to forecast the impact on profitability, IATA said the outbreak will shave about $30 billion from revenue, with the impact most severe on Chinese airlines. China’s government has stepped up efforts to contain the damage. Indebted conglomerate HNA Group Co. is expected to be taken over and its airline assets sold.
Under the plan, China would sell the bulk of HNA’s airline assets to the country’s three biggest carriers - Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp.. HNA-backed Suparna Airlines is also likely to be unloaded to the Jiangsu provincial government.