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Coronavirus Outbreak Hits Airline Carriers
Coronavirus outbreak has crossed borders and certainly impacted global markets sending share prices to an all-time low. The causalities facing the full brunt of the outbreak are airlines and tour operators as consumers’ jitters continue forcing airline carriers to cancel flights to China. Most airlines have cancelled flights in order to optimize capacity due to reduced demand for air travel. In Europe low cost carriers, Ryanair and Easyjet have continued operations despite a spike in cases in Italy. However, this has received criticism from passengers which appears that they are sacrificing passenger welfare and health concerns for profits. In the US, Delta airlines, which has about 38,000 flights a week, ceased operations in China and reduced connections to South Korea because of the outbreak.
This has resulted in massive revenue losses and airlines have resorted to short term-medium cost cutting measures such as “forcing” employees to take unpaid leave. Such key issue has subsequently forced airline carriers to recalibrate their responses to the outbreak epidemic with experts predicting a $100 billion dollar massive loss in earnings. The impact could be far worse than SARS outbreak and terror attacks in the US 2001 and even the global financial meltdown of 2007-2008.
In China a wave of airline disruptions has seen at least 80% sharp drop in air traffic putting squeeze on revenue and profits. With the world bracing for a possible pandemic, airports have put measures in place to test passenger travelling and the result has been countries taking border closure measures in order to curb the spread. For example in Prague, the airport has put separate gates for the passengers arriving from Italy in order to “properly” monitor and screen passengers. But the key question remains, are these measures bulletproof enough to curb the widespread pandemic? As this crisis deepens, airlines will continue to suffer major losses.
According to IATA (2020) estimates, the outbreak is expected to result in 13% full-year loss of passenger demand for airline operators in the Asia-Pacific region. The loss is expected to cause a revenue loss of $27.8bn in 2020 for the carriers, which will subsequently create a huge financial black hole on posted earnings. Not particularly, good news to the industry that is characterized by razor-thin profits, prone to external shocks and ever-increasing operating costs.
The outbreak of coronavirus can only confirm how susceptible the global industry is to exogenous shocks.