Covid-19: Devastating Impact on Tourism Sector and Commercial Flights

THIS NEW CORONAVIRUS OUTBREAK SPREAD THROUGH CHINA AND HAS HIT OTHER REGIONS OF THE WORLD. MEASURES ADOPTED HAVE NEGATIVELY AFFECTED MULTIPLE AREAS

When the coronavirus outbreak was announced in China at the end of last year, no one thought it would become a global issue and reach the pandemic proportions — as described by WHO (World Health Organization) — everyone knows today. It is not only a health issue, but it has also threatened world economy.

A very important element to highlight is that China — a country located in the Asian-Pacific region with several peculiarities — was the epicenter of this condition. This area groups a series of nations that constitutes today one of the areas with higher economic growth in the world. If we look for data from recent years, forecasts indicate this region enjoys a sustained increase in GDP. With the highest population density in the world, the commercial flight sector has experienced an ongoing and rapid growth supported by passenger traffic, to and from the area; as well as within the countries of the region. The growth and consolidation of airlines with their corresponding fleet of aircraft have been paramount, not to mention the impact on the leisure industry with the consequent increased flow of tourists.

THE DILEMMA

One of the decisive measures approved to contain the coronavirus outbreak has

rested on restrictions on the flow of people from affected cities and regions to others where the virus had not been reported yet. To make them effective, the cancellation of flights was imposed. Actually, those flights are the means of transportation that satisfy travelers' needs. We are essentially referring to millions of tourists.

The first airlines to cancel all flights to China were British Airways, Lufthansa, United Airlines, Delta Air Lines and American Airlines. Chinese airlines with domestic flights, flights within the region, and to America and Europe also cancelled all their flights.

The coronavirus, already known as Covid-19, did not respect borders and outbreaks were spotted in Japan, South Korea, Singapore, and isolated cases in other nations of the region.

Flight cancellation measures were extended to the affected countries. Many believed it was a problem focused on the Asia-Pacific region only, but the virus emergence in Italy and Iran showed the problem had worsened.

When the epidemic reached Italy, Covid-19 had already affected 87,000 people in the world with more than 3,000 deaths, most of them in China, while South Korea had announced 3,736 cases.

On March 2, it was reported that the global capacity of airlines had decreased by 3%, contrasting with IATA's forecast rate of growth at 4.7% in the current year.

One of the questions commercial flights had to cope with was: how much more will demand and capacity be reduced, and which airlines might not survive the crisis?

Meanwhile, there were no red flags in Europe among airlines with routes between European countries, especially the so-called "low-cost" airlines with an impact on tourist transportation. But the development of the epidemic in Italy darkened the panorama.

According to data compiled by the Johns Hopkins University Center for Systems Science and Engineering, on March 6, 98,000 cases were confirmed worldwide, of which 80,000 were spotted in mainland China, 6,593 in South Korea, 3,858 in Italy, and 3,513 in Iran. Although South Asia seemed unaffected, 30 cases were reported in India, five in Pakistan, and one in Bhutan, Nepal, and Sri Lanka.

THE EFFECTS

Air France-KLM: KLM has reduced recruitment and capital investment in a costsaving effort amid lower travel demand due to the outbreak.

EasyJet: The budget airline has highlighted the impact on the demand for air travel, particularly on Italian routes. Hence, it is reallocating capacity, implementing a hiring freeze, and has made an offer to staff regarding unpaid leave.

Finnair: The operator is analyzing a cost-cutting measures program after reducing the capacity plans and declaring that results will be "significantly" lower in the first semester.

IAG (British and Iberia): The group is implementing capacity cuts on short trip flights in addition to its Asian routes. This uncertainty triggered by the outbreak means that it cannot be issued a full-year outlook.

Lufthansa Group: The business is implementing a hiring freeze and offering staff unpaid leave as part of the cost-saving measures in the group. They say the capacity cuts are already equivalent to having 13 airplanes on the ground.

Wizz Air: The low-cost airline suspends select routes to destinations in northern Italy between March 11 and April 2, representing nearly 60% of its capacity for the country.

On the other hand, the stock market transactions showed the development of the crisis. While major European stock indexes, including those of Germany, France, the Benelux states and the United Kingdom, fell about 3-4% as the markets opened on February 24, the impact on airline shares has been more substantial.

Low-cost airlines, which rely heavily on short-trip flights within Europe, seemed to be particularly affected. EasyJet dropped by more than 12% and Ryanair by more than 10%, with Wizz Air shares falling 8.5%.

Air France-KLM shares fell more than 9% and SAS (Scandinavian Airlines) fell 8.5%. Lufthansa Group's share price dropped by almost 8%, while that of IAG, parent company of British Airways and

Iberia, fell by more than 7%. The leisure company TUI Group also fell 8%.

With the recent measure approved by the U.S. President to cancel all flights from Europe, the crisis took dramatic dimensions. The measure was heavily criticized by the European Parliament:

It affects one of the largest markets worldwide, taking data from Cirium, 40 airlines have 560 daily flights scheduled with a capacity of 160,000 seats, if we take it to a period of 30 days, the figure shows an impact of 17,000 flights and 4.8 million seats. A significant fact is that the three largest U.S. airlines: American Airlines, Delta Air Lines, and United Airlines jointly operate 200 daily flights to Europe.

China, which has reduced the number of people infected by the virus, seems to be beating the disease, but with a huge cost in revenue losses in the commercial flight sector of 24.6 billion Yuan ($3.52 billion) with a drop in passenger traffic of 84% compared to the same period last year, reported the CAAC (Civil Aviation Administration of China).

While the virus continues to spread to other countries, new measures are looming in an environment of uncertainty. Some hopes that everything will end soon and others forecast a darker scenario. Some airlines will not be able to overcome the crisis, such as British's Flybe, which fell in bankruptcy. Others will come off badly and they will have to work hard on to get on track again. Tourism is facing a tough challenge that will certainly impact negatively in the foreseeable future.

SOURCES: FLIGHT GLOBAL CIRIUM