The coronavirus outbreak’s effect on airlines threatens to become as severe as the blow dealt by the Great Recession.
Already, travel demand is dropping globally, and airlines are drastically reducing flight capacity while offering new waivers to passengers.
If the virus spreads more extensively, the plunge in air travel could amount to $113 billion in lost revenue for the world’s airlines, about one-fifth of their annual total, the International Air Transport Association (IATA) said Thursday. That’s on par with the effect of the 2008-09 recession and worse than the SARS outbreak in 2003.
“The turn of events as a result of COVID-19 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,” Alexandre de Juniac, IATA’s chief executive, said in a statement.
Airline stocks have fallen nearly 25% since the outbreak began, more than they did at a similar point in the SARS crisis when cases were confined mainly to Hong Kong and southern China.
Corporations are imposing bans on nonessential business travel for their employees, and major conferences and meetings are being canceled or postponed.
With corporate travelers a key source of airline profits, carriers are cutting operations and costs.
Delta Air Lines, the dominant carrier at Minneapolis-St. Paul International Airport, has reallocated dozens of widebody aircraft, typically reserved for long-haul flights, to snowbird routes, like MSP to Las Vegas and MSP to Phoenix.
Last month, neither of those routes had any Delta large widebody aircraft flying them. This month, widebody aircraft are scheduled to appear on those routes dozens of times, said OAG, a UK-based global travel data provider.
United Airlines has slashed its international flights by 20% and its domestic flights by 10% in April. The Chicago-based airline enacted a hiring freeze and asked employees to volunteer for unpaid leave.
“This has the potential to be the worst-ever incident to impact the aviation industry — bigger than SARS, bigger than 9/11 — with the potential to linger in consumer confidence for quite some time,” said John Grant, a senior analyst with OAG. “That’s because 20 years ago, the size of the aviation market was nowhere near as large as it is today.”
Coronavirus could reduce global business travel by $46.6 billion per month, or 37% of average global monthly spending, according to the poll by the Global Business Travel Association.
“Since corporate travel is down substantially and is not expected to recover for at least one to two months, we expect airlines to consider discounting to attract domestic leisure passengers,” wrote Helane Becker, a senior research analyst at Cowen Equity Research, covering airlines.
This could mean some nice, unexpected perks for leisure travelers, but at a cost to the carriers. Airlines typically can cover the cost of flying an international route solely through the sale of first-class and premium cabin airfares, while the economy class acts as a profit center.
While the effects have been felt most acutely by Asian airlines and global carriers with vast networks, U.S. domestic airlines will also likely need to trim back some flights in the short term, Grant said. For example, high-frequency routes will be consolidated to fewer flights per day. “That means a passenger might have to take a four-hour connection,” he said.
Twin Cities-based Sun Country Airlines is entering its busiest season — spring break. “We haven’t seen any significant flight cancellations for March,” said Kirsten Wenker, a spokeswoman for the airline. “We are monitoring the situation.”
To encourage passengers to continue booking domestic travel, Delta is offering customers the ability to change all flights booked throughout March without incurring a fee. That move, announced Wednesday, is in addition to travel waivers the airline has issued for all international flights booked before March 1.
“Delta maintains an ongoing relationship with the Centers for Disease Control and Prevention and the World Health Organization, the world’s foremost experts on communicable diseases,” the airline said. “We have adjusted flight schedules to affected areas, waived many change fees and are working with customers to adjust travel plans, using relationships with other airlines when needed.”
The world is more connected through air travel, with more passengers on U.S. flights from other nations than ever before, Grant said. That reflects the strength of the aviation industry and rising incomes around the world, but it has a down side.
“It can create doubt in the traveler’s mind that there might be a coronavirus-exposed passenger on my flight,” he said. “It is as much about confidence and global perception as anything.”