Coronavirus: Slump in-demand set to cost airlines almost $30bn

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A slump in demand due to the coronavirus outbreak is set to cost the global airline industry $29.3 billion in lost revenue this year.

The bulk of the revenue loss – $27.8 billion – will hit carriers in the Asia-Pacific region, as Iata warned that 2020 would be a “very tough” year for the sector.

An estimated $12.8 billion will be lost in the Chinese domestic market alone with those outside the region expected to lose $1.5 billion in revenue, the airline trade body calculated.

The total forecast drop in demand of 4.7% would wipe out expected growth this year, resulting in a 0.6% contraction in passenger demand for the year.

This would represent the first overall fall in demand in more than a decade.

The estimated impact of coronavirus assumes that the centre of the public health emergency remains in China.

If it spreads more widely to Asia-Pacific markets then impacts on airlines from other regions would be larger, according to Iata.

The estimates are based on a scenario where coronavirus has a similar impact on demand as was experienced during the SARS outbreak in 2003.

“That was characterised by a six-month period with a sharp decline followed by an equally quick recovery,” Iata said.

“It is premature to estimate what this revenue loss will mean for global profitability. 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.”

Iata director general and chief executive Alexandre de Juniac said: “These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority.

“Airlines are following the guidance of the World Health Organisation (WHO) and other public health authorities to keep passengers safe, the world connected, and the virus contained.

“The sharp downturn in demand as a result of COVID-19 (coronavirus) 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% 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 2008-09. 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. This will be a very tough year for airlines.”

De Juniac called on governments to provide support. He said: “We have learned a lot from previous outbreaks, and that is reflected in the International Health Regulations (IHR). Governments need to follow these consistently.”

He added: “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.”

Iata medical advisor Dr David Powell advised: “If you are sick, don’t travel.

“If you have flu-like symptoms, wear a mask and see a doctor. And when you travel wash your hands frequently and don’t touch your face.

“Observing these simple measures should keep flying safely for all.”

Carnival building two Vista-class ships in China

Buhdy Bok (left), president of Costa Group Asia, and Carnival Corp. CEO Arnold Donald at the China Cruise and Yacht Industry Association conference, after Donald announced an agreement to build ships in China. Photo Credit: Arnie Weissmann

Carnival Corp. has signed a memorandum of understanding to build two Vista-class cruise ships in China intended for use by a Chinese cruise brand.

The ships have been discussed in general terms as part of an earlier disclosure of a shipbuilding joint venture between Carnival, China State Shipbuilding Corp. and Italian firm Fincantieri.

The agreement was announced at the 11th annual China Cruise Shipping and International Cruise Expo in Tianjin, China.

The memorandum specifies that the first of the two ships would be delivered in 2022. There is also an option to build two more Vista-class ships. The first Vista-class ship, the Carnival Vista, entered service last May.

Carnival said that the agreement is “non-binding.” If the ships are built, it would be a groundbreaking development, marking the first time that sophisticated cruise ships are built in China for the Chinese domestic market.

A Carnival joint venture in China would operate the new ships as part of plans to launch the first multi-ship domestic cruise brand in China.

If the joint venture is finalized, in all likelihood older ships from Carnival Corp. brands would sail for the new brand in advance of the 2022 newbuild, said Roger Frizzell, chief communications officer for Carnival Corp.

Other partners in the operating joint venture include China State Shipbuilding Corp. and the China Investment Capital Corp.

“Being able to offer cruises on China-built cruise ships represents a new opportunity for us to generate excitement and demand for cruising amongst a broader segment of the Chinese vacation market,” said Alan Buckelew, Carnival Corp.’s global chief operations officer.

Separately, Carnival and its Chinese partners announced that the Chinese central government has granted approval for the cruise joint venture to incorporate in Hong Kong.