IATA on COVID-19’s financial impact

The International Air Transport Association (IATA) updated its analysis of the financial impact of the novel COVID-19, a public
health emergency on the global air transport industry. IATA now sees 2020 global revenue losses for the passenger business
between $63 billion and $113 billion (in a scenario where COVID-19 is contained or spread respectively).

IATA’s previous analysis issued on February 20, 2020 put lost revenues at $29.3 billion based on ascenario that would see the impact of COVID-19 largely confined to markets associated with China. Since that time, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China. Financial markets have reacted strongly. Airline share prices have fallen nearly 25 per cent since the outbreak began, some 21 per cent points greater than the decline that occurred at a similar point during the SARS crisis of 2003. To a large extent, this fall in prices is a shock to industry revenues much greater than our previous analysis.
To take into account the evolving situation with COVID-19, IATA estimated the potential impact on passenger revenues based
on two possible scenarios.

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 fall 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, are as follows: China (-23 per cent), Japan (-12 per cent), Singapore (-10 per cent), South Korea (-14 per cent), Italy (-24 per cent), France (-10 per cent), Germany (-10 per cent), and Iran (-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 shows 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.

Mitigation
Oil prices have fallen significantly (-$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
“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. Many airlines are cutting capacity and taking emergency measures to reduce costs.
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,” said Alexandre de Juniac, Director General and CEO, IATA.