The International Air Transport Association (IATA) has updated the financial impact analysis of novel coronavirus (COVID-19) public health emergency on the global air transport industry. IATA now expects the global passenger business revenue losses to be between $63 billion if the outbreak contained in current markets with over 100 cases as of 2 March, and $113 billion if the outbreak spreads far and wide.

Note that IATA previously (on 20 February 2020) put lost revenues at $29.3 billion based on a scenario 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.

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 2 March) experiencing a sharp downturn followed by a V-shaped recovery profile. It also estimates falls 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, as are as follows: China (-23%), Japan (-12%), Singapore (-10%), South Korea (-14%), Italy (-24%), France (-10%), Germany (-10%), and Iran (-16%). Additionally, Asia (excluding China, Japan, Singapore and South Korea) would be expected to see an 11% fall in demand. Europe (excluding Italy, France and Germany) would see a 7% fall in demand and Middle East (excluding Iran) would see a 7% fall in demand.

Globally, this fall in demand translates to an 11% 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 2 March). The outcome is a 19% 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. 

Market	Impact on passenger numbers	Impact on passenger revenues
Australia, China, Japan, Malaysia, Singapore, South Korea, Thailand, Vietnam	-23%	-$49.7 billion
Rest of Asia Pacific	-9%	-$7.6 billion
Austria, France, Italy, Germany, Netherlands, Norway, Spain, Switzerland, Sweden, the United Kingdom	-24%	– $37.3 billion
Rest of Europe	-9%	-$6.6 billion
Bahrain, Iraq, Iran, Kuwait, Lebanon, theUnited Arab Emirates	-23%	-$4.9 billion
Rest of Middle East	-9%	-$2.3 billion
Canada and US	-10%	-$21.1 billion

Note: Revenue loss figures are not additive due to overlaps of some markets, e.g., revenues for China and Germany both contain the revenues for the China-Germany market. Revenues are base fare revenues for all airlines flying to, from and within the country.

Africa and Latin America/Caribbean regions are not explicitly included in this market-based analysis, because there are currently no countries in either region with at least 10 COVID-19 cases.

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

“The turn of events as a result of COVID-19 is almost without precedent. 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. Governments must take note. 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. These are extraordinary times,” said Alexandre de Juniac, IATA’s Director General and CEO.

Cover credits: Centers for Disease Control and Prevention's Public Health Image Library (PHIL), Public Domain