Business: “Airlines to Lose Over $100 Billion Owing to the Coronovirus Epidemic” – IATA
The International Air Transport Association has released a worrisome statement that the new coronavirus might cost the global aviation industry $63 billion in revenue. An updated report regarding the impact of the virus reveals more than double the $29.3 billion reported last month.
A wider impact could lead to losses to the tune of $113 billion. This is dependent on how the outbreak of the virus spreads, IATA added, as part of the prospect of the industry goes dim.
The Secretary-General, Alexandre de Juniac was quoted as saying that, “The turn of events as a result of [the coronavirus] is almost without precedent. In little over two months, the industry’s prospects in much of the world have taken a dramatic turn for the worse. It is unclear how the virus will develop, but … this is a crisis.”
The report for March as released by IATA disclosed that, the Initial analysis by the industry lobby was based on a scenario where the impact of the virus would be largely limited to markets linked with China. But the virus has spread to over 80 countries since that time and bookings have been severely hit on routes beyond the Asian nation.
Quite a large number of airlines reacted to the increasing impact of the coronavirus, by cutting off additional flights both in the domestic and international markets, freezing hiring, reducing executive pay and parking planes.
Whilst it is no longer news that both individuals and organizations have continued to cancel tours and call off business activities and engagements across the globe, carriers are downsizing capacity so as to raise capital in preparation for the anticipated losses for the first Quarter of 2020. American and Delta Airlines have joined counterpart United Airlines this week in reducing the number of flights across their networks with some cuts extending through the summer.
Ed Bastian, the Chief Executive for Delta Airline, said at an industry conference that the carrier would cut down domestic capacity by 10% to 15% and international by 20% to 25%, and equally freeze hiring across the organization. Voluntary leave options would be granted to some staff, with a possible retirement of older aircraft.
Struggling UK carrier Flybe collapsed earlier Thursday as the slump in demand killed off hopes of a government-backed rescue. Scottish airline Loganair said it would take over 16 of Flybe’s routes over the coming months.
Similarly, American Airlines announced that it would cut domestic capacity by 7.5% in April and international by 10% for the upcoming summer season, in view of the slump in bookings.
United Airline noted that net bookings had fallen by up to 30%, thus necessitating a downsize in capacity since the situation was expected to worsen.
The CEO Oscar Munoz and President Scott Kirby are forgoing their base salaries through at least June 30, 2020, to help the airline recover.
Already, total liquidity has been shored up to $8 billion after the cuts, and 2020 capital expenditure has been slashed by more than a third to about $4.5 billion.
Southwest Airline CEO Gary Kelly, announced on Monday, that he was taking a 10% pay cut in response to a “severe recession” for the airline industry.
Spirit Airlines, also suspended its 2020 forecasts on Tuesday and said it was trimming its April capacity and eyeing more cuts in May.
Considering the positives with regards the outbreak, the airline noted that the fall in oil prices was helping the airline save some costs, and subsequent falls were expected to drive about $3 billion in 2020 cost savings for American Airlines, and $2 billion for Delta, equipping the them to further manage through the Coronavirus crises. In the end, the reduction in crude prices could reduce costs by $28 billion on the fuel bill for the year, IATA says.
Agreed that cost controls and savings from low fuel prices may help the bottom line of airline companies. Albeit, experts have said it will most likely not be enough to make up for revenue declines from the dented demand, given how badly the viral outbreak is already affecting the industry.