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25 February, 2020

Coronavirus expected to cause $44 billion loss to aviation industry

A peak industry body has released some troubling predictions of what the impact on the novel coronavirus might look like for the aviation industry.

The International Air Transport Association (IATA) has released its initial assessment of how the disease will affect airlines, predicting a potential 13 per cent full-year drop in passenger demand for carriers in the Asia-Pacific (APAC) region.

Taking into account the 4.8 per cent growth forecast for FY20, the impact would mean an 8.2 per cent full-year drop compared to 2019 levels.

The assessment indicates this drop could translate into a $42 billion revenue loss for 2020 for carriers in the APAC region, with the bulk carried by Chinese airlines, with $19.34 billion loss in the countries domestic market alone.

Carriers outside the APAC region are forecast to bear a revenue loss of $2.27 billion.

“That scenario would translate into lost passenger revenues of $44.26 billion,” Alexandre de Juniac, IATA’s director general and CEO said.

“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.”

The estimates are based on a scenario where coronavirus has a similar V-shaped impact on demand as was experienced during SARS.

In 2003, SARS was responsible for the 5.1 per cent fall in the RPKs carried by Asia-Pacific airlines.

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority,” Juniac said.

Announcing its half-year results, Qantas estimated the virus could impact net profits by as much as $100 million to $150 million for FY20.

Virgin Australia, which will release its half-yearly results tomorrow, told Travel Weekly it has seen the impact on group bookings since the announcement of a ban on Chinese tour groups to overseas destinations.

A spokesperson for the company said the airline has a policy in place for any guests wishing to change their bookings.

“We are closely following all advice received from Australian medical authorities, as well as the World Health Organisation, regarding precautions that are needed to minimise risks concerned with the 2019 novel coronavirus,” the spokesperson said.

Air New Zealand also released a statement revealing it expects its earnings to be hit by between NZ$35 million ($34 million) to NZ$75 million ($72 million).

Juniac said airlines and governments have an important role to play in preventing an economic crisis.

“Airlines and governments are in this together. We have a public health emergency, and we must try everything to keep it from becoming an economic crisis,” he said.

“Relief on airport costs will help maintain vital air connectivity. Other governments should take good note and act quickly.”

Airlines in the APAC region have been cutting flights and fares in response to a drop in demand, with Singapore airlines alone dropping hundreds of flights, including 130 services to and from Australia, the Australian reported.

This comes as the Australian government has raised its travel advice for South Korea and Japan as the fear of a global pandemic spreads.

Both countries have an overall warning of “exercise a high degree of caution”, citing advice from Australia’s chief medical officer.

According to the Sydney Morning Herald, Japan has confirmed 132 cases of coronavirus on top of the 602 cases confirmed on Diamond Princess, while South Korea has confirmed a whopping 893.

The global total of infected people currently sits at 79,573 and 2,626 reported deaths.

Featured image source: iStock.com/kokouu.

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