Coronavirus to cost global aviation industry $100 billion in revenue

The global airline industry is in a tailspin as the coronavirus spread its tentacles to more countries. As per the industry body IATA (International Air Transport Association), the financial impact of novel coronavirus (COVID-19) could be anywhere between $63 billion and $113 billion in 2020. The agency says that the impact of the coronavirus has been revised upwards from $29.3 billion on February 20. That's due to the fast spreading of the disease from China to over 80 countries now, and the forward bookings have been severely impacted on routes beyond China.

IATA says that financial markets have reacted strongly to the coronavirus impact, and the airline stocks have fallen nearly 25 per cent since the outbreak began, which are almost 21 percentage points higher than the decline that occurred at a similar point during the SARS crisis of 2003. In India too, the airline stocks have crashed over the past one month. Take IndiGo, for instance, which controls 47.9 per cent of the domestic aviation market. Its stock price has tumbled 16.4 per cent in a month to close at Rs 1,211.85 apiece on March 5. Its archrival SpiceJet's stock price has plummeted over 25 per cent to Rs 69.4 apiece on March 5.

"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. These are extraordinary times," said Alexandre de Juniac, IATA's director general and CEO.

In India, the impact of coronavirus has been felt largely by Air India. The national carrier commands 50.64 per cent market share (in Q2 FY19) in the international segment (among domestic carriers), and has suspended its services to China besides bringing down the frequencies to destinations such as Milan, Rome, Jeddah, Singapore, Japan, and others. In 2018/19, 63 per cent of Air India's passenger revenues (Rs 20,419.4 crore) were derived from international operations.

IATA has drawn two scenarios to predict the impact of coronavirus on the aviation sector. Under the conservative scenario, IATA expects passenger numbers to fall by 23 per cent in China, 24 per cent in Italy, 16 per cent in Iran and 14 per cent in South Korea. This fall in demand would translate into an 11 per cent worldwide passenger revenue loss of $63 billion in 2020.

Under the extensive spread scenario, IATA expects a 19 per cent loss in worldwide passenger revenues, which equates to $113 billion - which is identical to the losses incurred by the sector during the global financial crisis of 2008.

The only silver lining for the sector would be the fall in the crude oil prices - about $13 per barrel - 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," says IATA.

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