Covid-19

The spread of Covid-19

COVID-19 and the effect on the airline industry

The effects of the Coronavirus, now named Covid-19 by the World Health Organization (WHO), has already had a numbing effect on the airline industry. Sadly, it appears that the worst is yet to come.

SARS in 2002

Readers who remember the Severe Acute Respiratory Syndrome (SARS – a similar virus) in the 2002-03 period, will also recall that it led to a prolonged slowdown in the airline industry, which was still recovering from the 9/11 attacks. Covid-19 has easily surpassed SARS, which affected over 8,000 people and led to 774 deaths worldwide. The latest WHO report dated 17 February 2020 states that 71,226 laboratory confirmed cases of Covid-19 have been identified. It has already led to 1768 deaths in China and two deaths outside the country. an estimated 10,865 infected patients have recovered.

China’s airlines

With over 500 million domestic passengers and over 120 million travelling overseas in 2019, China is easily the world’s second largest aviation market, behind the USA.

Over 6,000 large commercial aircraft are registered to Chinese airlines and around another 1,500 are dedicated to flying in and out of the country.

There are nine large Chinese airlines and the Big Three; China Airlines, China Eastern and China Southern (see FT article here) have already grounded over 30% of their aircraft. Smaller regional airlines (still very large by any standard) such as Hainan Airlines, Shanghai, Shenzhen, Sichuan, Tianjin and Xiamen, have had to ground up to 50% of their fleets.

Another 30-odd smaller private airlines, plus nine large cargo specialists account for the remaining capacity. No visible data exists on how they are weathering this crisis.

Demand in free-fall

The number of passengers traveling, both within China and on international flights has dropped dramatically. While domestic loads remain opaque, IATA’s DDS data indicates that demand drops as large as 45% have been experienced. The Big Three alone have seen demand on international routes down by over 75% as many countries restrict travel in and out of China.

Many international airlines have stopped flying to China and many countries have banned anyone who has been in China from entering, unless they are citizens of that country.

Industry sources expect Hong Kong Airlines, a subsidiary of Hainan Airlines, to the worst affected of the non-mainland carriers, with Cathay Pacific (CX – also based in Hong Kong) suffering badly too, with 90% of CX  flights to China already cancelled.

Singapore and all the neighboring countries will be badly impacted. Singapore Airlines and its low-cost subsidiary Scoot carry over 2 million passengers to China every year. Korean Air and Asiana account for 6.5 million passengers between Korea and the mainland. Thailand’s carriers convey over 5 million passengers on their direct services to China with another million or so on feeder routes. All these countries will be severely affected, especially if the virus continues to spread.

Manufacturers

The internal travel restrictions imposed by the Chinese government, meant to stop the spread of the virus, has led to major labor shortfalls after the Lunar New Year holiday.

Airbus has closed its final assembly plant in Tianjin and a joint venture in Harbin that makes A350 components, has also slowed down due to labor shortages. This could have repercussions for months to come as the production of Airbus aircraft slow down due to supply shortfalls. With over 300 Airbus jets worth over USD 30 billion on order for Chinese airlines, a slow down in the industry seems inevitable unless the situation recovers very soon.

Over 70 Boeing 737 MAXs are already grounded in China and airlines have orders for another 192. Whether any of these will ever fly again is a question that is almost impossible to answer.

Rescue flights

Due to lack of flights and the lockdown of Wuhan, many countries have operated charter flights direct to the center of the pandemic to evacuate their nationals. Over 35 flights have taken place so far, some by flag carriers such as Qantas, Air NZ, Korean Air, Air India, Biman Bangladesh and SriLankan. However most of the lift has been provided by dedicated charter airlines such as Kalita Air of the USA (over ten flights) and even the A380 of HiFly (Portugal) chartered by the French government.

What are the parallels?

The Influenza epidemic of 1918 (also known as the Spanish Flu) devastated the world over one hundred years ago. Ceylon (as it was then) was also severely affected, a fact that seems to have escaped the attention of the history books – at least one’s this writer had in school. It is estimated that of a population of just over four million, 19,102 deaths were attributed to the epidemic (https://core.ac.uk/download/pdf/156616575.pdf) in Ceylon between 1918-1920.

In today’s context, that would amount to around 120,000 deaths – we must hope that Covid-19 is more treatable than the Spanish Flu was and that it does not reach our country.

What will the eventual cost be?

SARS was estimated to have cost the airline industry over USD 7 billion in lost revenue. That was back in 2003, when China’s market was a fraction of the size it had reached by 2019.

Even if the Covid-19 epidemic is contained, the cost to the industry is likely to be in the region of USD 20-25 billion – a downturn that has not been experienced since the tragic events of September 11th 2001.

 

 

 

 

2 comments

  1. Cecil Porter

    Hi, I desire to subscribe for this post to obtain most up-to-date updates, so where can i do it please help.

    1. Suren Ratwatte

      Hi Cecil,

      Just working on the subscription feature. Give me a few days. in the meantime will add you to the mailing list.Thnaks for your interest.

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