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Asia-Pacific airlines to take US$27.8 billion hit from COVID-19 forecasts global transport body
February 21st 2020
The International Air Transport Association (IATA) released its initial assessment of the impact of the COVID-19 outbreak on Thursday with a forecast that Asia-Pacific carriers would suffer a full year contraction in passenger demand of 13%. Read More »
“Considering that growth for the region’s airlines was predicted to be 4.8% for the year, the net impact will be an 8.2% full-year contraction compared with 2019 demand levels,” IATA said. This forecast “would translate into a US$27.8 billion revenue loss for 2020 for carriers in the Asia-Pacific, the bulk of which would be borne by carriers registered in China with $12.8 billion lost in China alone”, the association said.
“Carriers outside the Asia-Pacific are forecast to lose $1.5 billion assuming the loss of demand is limited to markets linked to China. This would bring total global lost revenue to $29.3 billion and represent a 4.7% hit to global demand,” the February 20 IATA statement said.
IATA said its estimates “were based on a scenario where COVID-19 has a similar V-shaped impact on demand as was experienced during SARS. This was characterised by a six-month period with a sharp decline followed by an equally quick recovery. In 2003, SARS was responsible for the 5.1% fall in RPKs carried by Asia-Pacific airlines”.
The impact of the virus outbreak is becoming clear as airlines begin reporting their financial results. Qantas Group CEO, Alan Joyce, said the group expected a challenging second half of 2019-2020 after posting a 3.9% decline in its first half net profit. The Australia-headquartered airline group reported a net profit of A$445 million (US$512.1 million) for the six months to December 31 2019, which was A$18 million lower than the A$463 million in the prior corresponding period.
Underlying profit before tax, which removed one-off items and was regarded as the best indication of financial performance, was half a per cent lower at A$771 million, from A$775 million previously.
Revenue rose 2.8 per cent to A$9.46 billion, Qantas said in a regulatory filing to the Australian Securities Exchange on Thursday.
Joyce said at the results announcement on February 20 that the first half result was affected by foreign exchange costs, the political demonstrations in Hong Kong, a weak cargo market and increases in domestic airport overheads due to terminal sales. Qantas sold its domestic terminal at Melbourne Tullamarine Airport in May 2019. All up, the impact of these events to the business totalled A$174 million.
Looking ahead, Joyce said there were more challenges in the current half as COVID-19 had cut demand for air travel throughout the Asia-Pacific. China represented about 2% of Qantas's international capacity, he said, but there were flow-on effects on some of the group’s Asian routes, such as Hong Kong, Singapore and Japan.
Qantas said it expected the "net negative impact" of COVID-19 to be between A$100 million and A$150 million. The company planned to update the market in April.
In the last seven days, other airline groups in the region have reported on the impact of COVID-19 on their operations.
Singapore Airlines (SIA) said in its financial results for the third quarter of its fiscal 2020 financial year the "growing scale of the COVID-19 outbreak poses significant challenges to the SIA Group".
"Demand for services to mainland China has been severely affected," SIA said in a regulatory filing to the Singapore Stock Exchange on February 14.
"Amidst this challenging environment, the SIA Group will continue to be proactive and nimble in making appropriate network adjustments and managing costs tightly," it said.
SIA said net profit for the third quarter of its fiscal 2020 financial year rose 10.3% to S$315 million (US$225 million), from S$284 million in the prior corresponding period. Operating profit was up 15.7% to S$449 million. Total revenue improved 3% to S$4.47 billion.
In Hong Kong, Cathay Pacific Airways said in its January traffic figures its financial results for the first half of 2020 would be "significantly down on the same period last year" as it slashed capacity in response to the COVID-19 outbreak.
"With more governments worldwide having imposed travel restrictions on passengers from mainland China and in some cases Hong Kong, we are seeing continued cancellations of bookings," Cathay Pacific group chief customer and commercial officer, Ronald Lam, said.
Lam said passenger capacity reduction was "also likely for April" as the airline group, comprising Cathay Pacific and regional wing Cathay Dragon, continued to monitor and match market demand.
Freighter capacity has been unchanged.
In other airline results, India’s SpiceJet said profit for the three months to December 31, 2019 rose 33% despite the disruptions caused by the global grounding of the 737 MAX in March 2019 following two fatal accidents.
SpiceJet chairman and managing director, Ajay Singh, said the airline had done "remarkably well" in the third quarter. However, the continued grounding of the 737 MAX would "undoubtedly" hit the airline's growth plans adversely and result in inefficient operations and increased costs, he said.
"That said, SpiceJet expects to grow profitably while maintaining tight control over costs and we look forward to an exciting 2020,” Singh said in a statement on February 14. SpiceJet said it received an "interim offer of compensation" from Boeing during the quarter.
