Coronavirus: Airlines shaken, travel takes a dip

As major companies begin to cancel conferences and travel plans around the globe, it is obvious that this will have cascading effects on aviation and travel business. Wole Shadare writes

Air travel in disarray

The travel industry is in total disarray. Never has air travel taken a hit like what is presently experienced occasioned by deadly Coronavirus that is ravaging the world. As the coronavirus continues to spread outside of China, air travel is seeing some big impacts. Airlines have cut nearly 500, 000 flights because of travel restrictions.

Many major airlines across the globe have suspended flights to mainland China and Hong Kong.

Death toll

The Global Business Travel Association warned recently that the virus could cost the travel industry close to $560 billion this year in revenue, a third of the 2020 forecast business travel spending as trips to Europe, Asia and elsewhere are called off because of the virus. Until last week, there were still hopes that the business impact of the coronavirus would be limited. The travel industry was using as a benchmark the 2003 SARS outbreak, which hit 26 countries, killed 774 people and caused a six-month dip in global travel.

As at last week, coronavirus had killed over 2,800 people. Nigeria reported first case of coronavirus last week Friday. The announcement shook the nation as authorities are looking for solution and trying to curb its spread.

Although it can be argued that the coronavirus is not as dangerous as many people fear — perhaps not so much worse than the flu — or that travelers are over reacting, it could, however, reach panic stage quickly, and when that happens, rational thought disappears.

Airlines, consumers panic

Airlines are more susceptible to panics than many businesses. No matter what, people need groceries, household staples, and clothing, but travel is often discretionary. Whether for leisure or business, most people do not need to fly.

Just like consumers in countries with current outbreaks, people will delay or cancel trips, believing the risk of getting sick is not worth it. It is believed that some people are already waffling on buying summer trips, hoping to see how this plays out; but now, they are probably wondering if the trip to see grandma in Denver, London, New York, Italy is worth the risk

The effect is huge considering that many global events have already been put off. The world’s biggest travel industry event, ITB Berlin, has been cancelled due to the rapid spread of coronavirus.

Uncertainty

Airlines, already buffeted by a big drop-off in flights to Asia, have been hit particularly hard. On Friday, Lufthansa said it was slashing its short-haul flights by up to 25 per cent as demand slumped.

British Airways parent company, IAG, warned that the uncertainty meant it could not provide a profit outlook for 2020; its shares fell eight per cent and are down by a quarter in 10 days.

Amid a flurry of deep cleaning at their headquarters, hundreds of businesses, including multinationals such as BP, BMW, Orange and Estée Lauder, have suspended travel to countries with outbreaks of the virus and imposed quarantines on any returning from those regions. Others such as Nestlé, which has 352,000 employees, and L’Oréal, which has 86,000 employees, have gone further — cancelling all international travel for at least a month.

IATA’s forecast

The International Air Transport Association (IATA) predicts demand for air travel will fall for the first time in more than a decade.

Airlines in China and other parts of the Asia Pacific region are expected to take the vast majority of the impact. It comes as carriers around the world have been forced to reduce flights.

In total, airlines in the Asia Pacific region are set to see a $27.8bn revenue loss in 2020, while those outside Asia are expected to lose $1.5 billion in revenue, IATA has forecast.

Of that figure, IATA predicts that carriers in China are set to lose revenue of $12.8 billion in their home market alone.

“Airlines are making difficult decisions to cut capacity and in some cases routes,” said IATA’s director-general Alexandre de Juniac. “This will be a very tough year for airlines.”

The forecast also assumes that the virus remains centred on China, but IATA warned the effect could be far worse if the infection spreads further in the region.

IATA had previously forecast that the Asia Pacific region would be the biggest driver of air travel demand between 2015 and 2035, with four of the five fastest-growing markets in terms of passengers being from Asia.

On Thursday, two major airline groups warned of a severe financial impact as a result of the coronavirus hitting demand for travel in Asia.

Australia’s Qantas said the outbreak would cost it up to A$150 million ($99m; £76m), while European carrier, Air-France KLM, put the cost at up to 200 million ($213m; £168m) for the period between February and April.

A Travel expert, who preferred anonymity, said most travelers were having a period of “wait and see. “They’re assessing things. The same way we saw with SARS, MERS, Ebola, and Zika. They’re waiting to see. They want to see exactly how far this is going, how serious it is, whether it’s going to affect them. If anything, some travelers are thinking about a backup plan.”

Airlines’ reaction

If this gets worse,  U.S. carriers are expected to act on several fronts. To assuage passenger concerns, they may clean domestic airplanes more thoroughly, perhaps implementing similar standards as for long-haul jets, which generally receive a full disinfecting after each flight. They may also alter service, as more Asian airlines have done, reduce interactions between flight attendants and customers.

To fill seats, they may aggressively discount, seeking to boost demand by lowering prices. And to align supply with demand, they may park jets to reduce capacity.

Last line

The virus will test airlines’ reliance on high-paying corporate travelers. Carriers have also poured millions into refreshing their cabins to cater to high-paying corporate travelers.

Wole Shadare