SARS cost global airlines $7 billion. The coronavirus outbreak will likely be much worse
The global airline industry is facing huge financial losses as a growing number of carriers cancel flights to China because of the coronavirus outbreak. The hit will very likely be worse than the damage wrought by the 2003 SARS epidemic.
The outbreak of the disease has already killed 492 people worldwide, mostly in China, and infected more than 24,500 people across 25 countries.
In response, more than a dozen major airlines have canceled flights to and from mainland China. Several countries have also banned entry to foreigners who have traveled to China, while others have told their citizens not to travel there, or to leave if they can.
The last time the aviation industry faced this kind of crisis was back in 2003, when the SARS outbreak cost Asia Pacific carriers $6 billion in revenue, according to the International Air Transport Authority (IATA). North American airlines lost $1 billion, while European carriers largely escaped unscathed, analysts say. It took nine months before international passenger traffic returned to normal, IATA said.
The coronavirus will “definitely” surpass that $7 billion SARS hit, said Ivan Su, an analyst with financial services firm Morningstar.
The global aviation industry, which generated $838 billion in revenue last year, will lose more money this time around for several reasons: The number of Chinese air travelers has ballooned since 2003. Chinese carriers, and the industry as a whole, are bigger now than before. And flight suspensions and travel advisories could last longer than they did during SARS, which would weigh on international airlines.
A massive aviation market
Around 660 million Chinese passengers traveled by air in 2019 — more than seven times as many as in 2003, according to state news agency Xinhua and Fitch Ratings. The vast majority of those trips are for domestic travel. The boom in China far outpaced the global increase in passenger numbers, which grew from 1.7 billion in 2003 to 4.2 billion in 2018, according to the World Bank.
When SARS hit, global passenger traffic fell by 18.5% in April 2003 compared to a year earlier, with a drop of almost 45% in Asia-Pacific, Fitch ratings agency said in a report lat week.
This time around, the drop could be far worse. The coronavirus outbreak hit just as China was preparing for the Lunar New Year, its most significant holiday. Millions of Chinese scrapped travel plans as Beijing took the extraordinary step of placing entire cities on lockdown to contain the virus. Officials said last month that air travel on the first day of the holiday period fell more than 41% compared to a year ago.
Lunar New Year aside, China has also become much more important to the global aviation industry.
It is currently the world’s second-largest civil aviation market, behind the United States, hauling in 1.06 trillion yuan ($151 billion) in revenue last year, according to Xinhua.
Major Chinese carriers Air China, China Southern and China Eastern “have grown easily five to sixfold compared to 2003, when they were just very, very small compared to the rest of international carriers,” said Shukor Yusof, head of aviation consulting firm Endau Analytics in Malaysia.
China Southern, the country’s biggest airline, reported 43.7 billion yuan ($6.2 billion) in revenue in the third quarter last year. By comparison, Delta — the top US carrier — reported revenue of $12.6 billion for the same period.
Restrictions and cancellations
Extensive travel restrictions will also weigh on international carriers.
“Airlines are more impacted today because China is the world’s economic engine,” Yusof said, adding that the sweeping flight cancellations made by American Airlines, Air Canada, British Airways and others are “unprecedented.”
“This [outbreak] should be worse as travel bans have started early and it seems they will remain in force for a long period of time,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.
During SARS, the World Health Organization issued its first emergency travel advisory about the illness in mid-March of 2003, nearly five months after the first reported cases began to emerge. The agency lifted travel advisories against Hong Kong and Beijing in May and June of that year respectively, once the outbreak had been contained in those hubs.
Most flight cancellations during SARS lasted roughly two months, according to Su of Morningstar.
Hong Kong’s flagship carrier Cathay Pacific was among the hardest hit. At the height of the SARS outbreak, Cathay canceled 42% of its flights due to travel fears, and saw its daily passenger load fall to about 10,000 from 33,000.
On Tuesday, the company announced it would cut flights by 30% worldwide for two months, including a 90% reduction in flights to mainland China during that time. The company’s stock has fallen more than 11% so far this year.
— Serenitie Wang and Steven Jiang contributed to this report.
