China's airline firms will be the hardest hit by a significant plunge in revenue for the year due to the rampaging COVID-19 outbreak that has practically cut-off China from the rest of the world by air.
The International Air Transport Association (IATA) estimates $12.8 billion, or 55%, of the projected $29.3 billion total revenue loss among airlines this year will be borne by carriers registered in China. IATA also predicts COVID-19 will trigger in a 4.7% plunge in global traffic based on an initial impact assessment by the global airline industry. The association said it's premature to estimate what the huge revenue loss will mean for global profitability.
Some 75% of the total Chinese commercial airline passenger fleet currently stands idle because of low passenger numbers, estimates Cowen Inc., an American multinational investment bank and financial services company. Cowen also assumes it might take at least a year for traffic to rebound. Other analysts estimate an even longer 18-month recovery period.
China Eastern Airlines Corporation Ltd (China's second largest carrier by passenger numbers) and China Southern Airlines Company Ltd (Asia's largest airline in fleet size, revenue and passengers carried) each reported a 1.2% drop in traffic in January. Air China Ltd (China's flag carrier) reported a 4.1% revenue drop.
IATA said on Thursday said more than 120 airlines have canceled or curtailed flights through China and Hong Kong, thereby eliminating close to 90% of international capacity. The elimination of widebody passenger transport has also done away with a popular air-shipping option for cargo owners.
International airlines, including British Airways, Lufthansa, Qantas and the three largest U.S. airlines (American Airlines, United Airlines and Delta Air Lines) have suspended flights to China. The suspensions in some cases will last until late April or May.
IATA further estimates COVID-19 will slash demand for Asia-Pacific carriers by 13% this year after initial forecasts were for 4.8% growth, for a net contraction of 8.2%. Asia-Pacific carriers are expected to lose $27.8 billion in revenue.
The combined revenue loss, however, is 5% lower than IATA's forecast in December and represents a 4.7% drop in global demand. IATA said the loss will completely extinguish expected growth this year. The offshoot will be a 0.6% global contraction in passenger demand in 2020 -- the first drop in demand since the Great Recession of 2008.
Carriers based outside Asia are forecast to lose $1.5 billion in revenue, but this assumes the loss of demand is limited to markets linked to China.
"These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority... The sharp downturn in demand as a result of COVID-19 will have a financial impact on airlines - severe for those particularly exposed to the China market," IATA Director General Alexandre de Juniac said in a statement.
"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."
