IATA on COVID-19’s financial impact
The International Air Transport Association (IATA) updated its analysis of the financial impact of the novel COVID-19, a public health emergency on the global air transport industry. IATA now sees 2020 global revenue losses for the passenger business betw
IATA’s previous analysis issued on February 20, 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. Financial markets have reacted strongly. Airline share prices have fallen nearly 25 per cent since the outbreak began, some 21 per cent points greater than the decline that occurred at a similar point during the SARS crisis of 2003. To a large extent, this fall in prices is a shock to industry revenues much greater than our previous analysis.
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 March 2) experiencing a sharp downturn followed by a V-shaped recovery profile. It also estimates fall 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, are as follows: China (-23 per cent), Japan (-12 per cent), Singapore (-10 per cent), South Korea (-14 per cent), Italy (-24 per cent), France (-10 per cent), Germany (-10 per cent), and Iran (-16 per cent). Additionally, Asia (excluding China, Japan, Singapore and South Korea) would be expected to see an 11 per cent fall in demand. Europe (excluding Italy, France and Germany) would see a 7 per cent fall in demand and Middle East (excluding Iran) would see a 7 per cent fall in demand.
Globally, this fall in demand translates to an 11 per cent 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 March 2). The outcome shows a 19 per cent 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.
Many airlines are cutting capacity and taking emergency measures to reduce costs, they are doing their best to stay afloat as they perform the vital task of linking the world’s economies
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
“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.
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,” said Alexandre de Juniac, Director General and CEO, IATA.
The first-ever GCC roadshow conducted by Gulf Reps was held in Kuwait, Dubai and Abu Dhabi from February 11-13, 2020 with over 150 travel agents from the GCC. Each roadshow offered many opportunities for travel agents to directly speak with the partners from the shopping villages, tourism boards and hotels in the heart of Europe.
This is the first time that we arranged this type of event for the Middle East region and it was very well received. Although in Kuwait there were other ongoing events, over 50 agents participated. We have been travelling around with about 20 partners. Tourism Ireland was very well received in Kuwait and they managed to seal some bookings at the event. We are also introducing new villages.
It was very interesting for us, as we are one of the nine European villages and it was the first time that we participated in a sales mission in the GCC. My first perception is that people are very interested in the GCC. We are happy with the results that we managed to get and the contacts that we were able to make.
It was a very well organised event. We saw quality in terms of the agents that visited us. They were interested in knowing about the location of the property and availability of bigger/connecting rooms. For those in the GCC, the perfect time to travel is from spring to end of the summer.
I am representing two German villages and it has been a wonderful experience in the GCC countries. In Kuwait they were interested to know more about what we could offer to their clients. Dubai and Abu Dhabi were more familiar with the village hubs like Munich and Frankfurt and wanted to know more about the other parts of Germany.
Whenever a travel agent came, he saw the full experience that he can share with his client which was the whole package with hotels and shopping as well. Kuwait had lots of questions about shopping in Spain, which offers much by way of high street brands, VAT exemptions, shopping nights and various other experiences.
It is the first time we are representing La butte aux bois in Belgium here in the GCC. Personalisation is one of the key features in our five-star property. We want to give our guests ‘a home away from home’ experience and offer them relaxation amidst natural environs.
We had a great experience in Kuwait. People had many questions about the city and the shopping destinations. The peak season starts by end of May, so we are ready for the GCC clients. The clients want to be updated with the latest information and this is the platform that agents can learn about. We are in the process of opening a new restaurant and some agents even asked me when it will be open.
It was a very interesting day in Kuwait, the people were very friendly. They were looking for a hotel with a spa and in a green environment. They know Brussels very well, so it was a pleasant surprise. Many activities to do in the area.
We had a great time in Kuwait where we met over 50 travel agents. We had the opportunity to showcase how shopping tourist destinations are important. They are looking for dedicated and exclusive services and the good thing about our company is that we can offer the best in terms of hospitality services.
It went very well as you know people are very educated and well-travelled. They are very sensitive in terms of brands and fashion. UAE is a large market for us and we have many connections so this roadshow gave us an opportunity to further highlight the new products and services available and also to connect with new agents.