That grounded feeling - the global airline industry is cutting capacity and routes as it tries to combat the virus outbreak. File picture of business jets on display at the Singapore Airshow. Image Credit: Reuters

Dubai: Airlines worldwide could lose close to $30 billion in revenues this year from the coronavirus outbreak, with $12.8 billion borne by Chinese carriers alone.

The $30 billion estimate represents a 4.7 per cent hit to global demand from a year before.

According to IATA, carriers outside Asia-Pacific are forecast to bear a revenue loss of $1.5 billion if demand declines are limited to markets linked to China. For the Asia-Pacific region as a whole, the lost revenues could total $27.8 billion.

“Regional carriers will see their revenue dip by 3 per cent, but this figure can go up to 50 per cent if the outbreak continues and travel restrictions are expanded,” said Muhammad Ali Albakri, regional vice-president, Africa and the Middle East, at International Air Transport Association (IATA).

Albakri said there has been a drop in ticket sales in the Middle East and elsewhere. The industry is staring at a potential 13 per cent full-year dip in passenger demand for carriers in the Asia-Pacific region.

Past lessons

The estimates by IATA are based on a scenario where COVID-19 has a similar V-shaped impact on demand as was experienced during the SARS outbreak in 2003. SARS was responsible for the 5.1 per cent fall in revenue per passenger kilometre (RPK, an industry measure) carried by Asia-Pacific airlines.

“It is premature to estimate what this revenue loss will mean for global profitability,” said Albakri. “We don’t yet 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.”

According to Alexandre de Juniac, IATA’s Director-General and CEO said: “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 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 could more than offset the growth we previously forecast and cause the first overall decline in demand since the global financial crisis of 2008-2009. 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.”