On December 31st last year, Wuhan, a city in the Hubei Province in China was exposed to a new coronavirus that quickly escalated and resulted in the city being quarantined. During that time several locals and citizens evacuated the country which led the outbreak to spread further to other countries, and soon the coronavirus was declared as a global epidemic by the WHO.
Special health inspection procedures are now being enforced in airports to check all passengers for any possible traces of the virus or infections. By January 23rd, all public transportation including flights were suspended in Wuhan, while other cities in China have been instructed to enforce strict health inspections on airports. In doing so, the International Air Transport Association (IATA) has predicted a decline in the demand for airline tickets for the first time in over a decade. Due to the coronavirus, airlines in China and other parts of the Asia Pacific region are forecasted to experience most of the impact.
As of now, airlines in Asia Pacific expanse are expected to witness a $27.8 billion revenue loss in 2020. Within that figure, China alone is set to experience a loss of $12.8 billion in its market. Multiple travel restrictions are being enforced by international governments and thus the coronavirus epidemic is having a major negative impact on the airline industry. The government of China ordered the closure of factories which has also disrupted the supply chain of the aviation business.
The epidemic has even caused local businesses to come to a standstill, be it small tech companies offering Magento development services, food delivery businesses, etc. operating in mainland China. Likewise, it has brought a massive decline to the business aviation sector.
Airline traffic nosedives
Air transport data provider, OAG, recently reported that the fast-paced decline in airline seat capacity is already the biggest ever documented for a country in a short period of time. The company informed that the reaction to the outbreak has caused two-thirds of international flights to and from China to be canceled. As of January 20th, approximately 1.4 million airline seats have been canceled from the scheduled capacity of airlines. The top airlines serving outside of China witnessed reductions in the international capacity in the range of 5.6-79.7%, with the majority suffering from double-digit regressions. The ones to take the hardest falls were Air China, China Southern, and China Eastern, with Asiana Airlines, Thai Lion Air, Korean Air, Thai AirAsia, and All Nippon Airways following closely behind.
According to the latest OAG reports, it was declared that the decline in airline capacity has extended to other nations as well, with Thailand experiencing the biggest plunge in airline traffic from China with 63 percent. Japan, Taiwan, Russia, and many others with connections to China have witnessed similar declines in traffic as well.
Hundreds of major businesses including multinational brands such as BMW, BP, Orange, and Estee Lauder have postponed travel to countries with possible outbreaks and enforced quarantines on those returning from those locations. Nestle which has 352,000 employees, and L’Oréal with around 86,000 employees, have gone as far as canceling all international touring for at least the rest of the month. With businesses coming to a halt, events and conference meetings being canceled, the impact on premium traffic has been detrimental; which is the main source of revenue generation for the airline industry. The Swiss Government took precautionary measures by banning all events like the Geneva Motor Show and Basel watch fair. They realized that it was a major risk to have hundreds of people flying to a global event, which led to the cancellation of these occasions.
Furthermore, the weaker players in the industry might not even survive the repercussions of the outbreak which could lead to their demise. Airline companies such as the Norwegian Air Shuttle suffered a loss of half of its equity value, meanwhile, EasyJet immobilized recruitment and backed up investment in urgency in order to protect profits from the fading passenger volume.
It was recorded that the most significant drop in both planned flights and the number of scheduled flights that didn’t operate, had only initiated on February 1st as the magnitude of the outbreak became a bigger concern outside China and travel restrictions had taken effect. Soon after, on February 7th, Hong Kong declared that it will be tabling 400 jobs and limiting operations as a response to the coronavirus epidemic. The daily operations are being shortened from 82 to 30 sectors starting from February 11th to the end of March. In addition, the airline has requested staff to either take unpaid leave for at least two weeks each month until the end of June or to work three days per week.
The three prominent U.S. airlines – United airlines, Delta Air Lines, and American Airlines (A1G) (AAL) have postponed any services to and from China. While Delta has no intention to resume flights until April 30th, American and United plan to run their suspension until March 27th and 28th. These decisions were taken after the U.S. State Department delegated new restrictions on travelers from China and instructed their citizens to not travel to the country until things settled down.
Another victim is the Israel Aerospace Industries’ maintenance and repair company, which is located in China’s Hubei province – where the outbreak initiated. The government has instructed them to suspend all operations until further notice. Currently, aviation leaders and businesses are scrambling to anticipate the long-term effects of the coronavirus epidemic on their economy as the future seems uncertain.
If things continue to worsen with time, the epidemic could put the travel industry at a $46.6 billion income loss per month from business travelers. More and more aerospace manufacturers are suffering from losses because of their supply chain connections in China, with many declaring that they won’t send any aircraft deliveries through Chinese airlines in 2020. Nations are bracing for global impact as they record sharp reductions in tourism revenues, disruption of industrial supply chain, and decline in exporting of consumer and capital goods. While the coronavirus outbreak has shaken up the world and all its ventures, the aviation industry is still holding on to the hope of a swift rebound. If we manage to control the current public health crisis, there is a possibility for businesses to get back on track soon.