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Will the coronavirus affect the economy? 2:00
Hong Kong (CNN Business) - The global airline industry faces huge financial losses because an increasing number of companies are canceling flights to China due to the outbreak of coronavirus. It is very likely that the coup is worse than the damage caused by the 2003 SARS epidemic.
The disease outbreak has already killed 492 people worldwide, mainly in China, and has infected more than 24,500 people in 25 countries.
In response, more than a dozen major airlines have canceled flights to and from mainland China. Several countries have also prohibited entry to foreigners who have traveled to China, while others have told their citizens not to travel there or leave if they can.
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The last time the aviation industry faced this type of crisis was in 2003, when the SARS outbreak cost Asia Pacific carriers US $ 6 billion in revenue, according to the International Air Transport Authority (IATA). US airlines lost $ 1 billion, while European airlines were unharmed, analysts say. It was nine months before international passenger traffic returned to normal, IATA said.
The coronavirus will “definitely” overcome that US $ 7 billion SARS coup, said Ivan Su, an analyst at financial services firm Morningstar.
The global aviation industry, which generated $ 838 billion in revenue last year, will lose more money this time for several reasons: the number of Chinese air travelers has skyrocketed since 2003. Chinese airlines, and industry in general, They are bigger now than before. And flight suspensions and travel warnings could last longer than they lasted during the SARS, which would weigh on international airlines.
A mass aviation market
Around 660 million Chinese passengers traveled by plane in 2019, more than seven times more than in 2003, according to state news agency Xinhua and Fitch Ratings. The vast majority of those trips are national. The boom in China far exceeded the global increase in the number of passengers, which grew from 1.7 billion in 2003 to 4.2 billion in 2018, according to the World Bank.
When SARS arrived, global passenger traffic fell 18.5% in April 2003 compared to the previous year, with a drop of almost 45% in Asia-Pacific, Fitch rating agency said in a report the last week.
This time, the fall could be much worse. The coronavirus outbreak struck just as China was preparing for the Lunar New Year, its most important holiday. Millions of Chinese rejected travel plans when Beijing took the extraordinary step of putting entire cities in the closure to contain the virus. Authorities said last month that air travel on the first day of the holiday period fell more than 41% compared to the previous year.
Apart from the Lunar New Year, China has also become much more important for the global aviation industry.
It is currently the second largest civil aviation market in the world, behind the United States, with revenues of 1.06 billion yuan (US $ 151 billion) last year, according to Xinhua.
The main Chinese airlines Air China, China Southern and China Eastern "have grown easily five to six times compared to 2003, when they were very, very small compared to the rest of the international companies," he said. Shukor Yusof, head of the aviation consultancy Endau Analytics in Malaysia.
China Southern, the largest airline in the country, reported 43.7 billion yuan (US $ 6.2 billion) in revenue in the third quarter of last year. In comparison, Delta, the main US airline, reported revenues of US $ 12.6 billion for the same period.
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Restrictions and cancellations
Extensive travel restrictions will also affect international carriers.
"The airlines are most affected today because China is the world's economic engine," Yusof said, adding that the extensive cancellations of flights made by American Airlines, Air Canada, British Airways and others "are unprecedented."
"This [outbreak] should be worse as travel bans started early and it seems they will remain in effect for a long period of time," said Alicia García Herrero, chief economist for Asia Pacific at Natixis.
During the SARS, the World Health Organization issued its first emergency travel warning about the disease in mid-March 2003, almost five months after the first reported cases began to emerge. The agency raised travel warnings against Hong Kong and Beijing in May and June of that year, respectively, once the outbreak was contained in those centers.
Most flight cancellations during SARS lasted approximately two months, according to His Morningstar.
Hong Kong's flagship airline, Cathay Pacific was one of the most affected. At the height of the SARS outbreak, Cathay canceled 42% of its flights due to travel fears, and saw its daily passenger load drop from about 33,000 to about 10,000.
On Tuesday, the company announced that it would reduce flights by 30% worldwide for two months, including a 90% reduction in flights to mainland China during that time. The company's shares have fallen more than 11% so far this year.
- Serenitie Wang and Steven Jiang contributed to this report.
SARS