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Coronavirus could cost airlines more than $100bn, industry body warns

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Via Financial Times

The spread of the deadly coronavirus outbreak could cost global airlines up to $113bn in lost revenues this year, almost four times as much as was estimated just two weeks ago, the industry’s trade body has warned.

The International Air Transport Association on Thursday warned the industry was in a crisis zone following the rapid global spread of the virus over the past week through Europe and into the US.

The announcement came as Southwest Airlines, the world’s biggest low cost carrier, revealed it expected a $200m-$300m hit to first quarter core sales. Revenue per available seat mile — a key industry measure — in the first three months could now even fall on last year against expected growth of at least 3.5 per cent.

The impact on the big US carriers — in recent years the most profitable in the world — appears to be accelerating with Delta and United Airlines announcing further cuts to international and domestic capacity, reflecting the sudden and sharp drop in passenger demand in recent days. Delta is cutting flights to Japan while United is reducing international schedules to Asia and Europe by 20 per cent and domestic capacity by 10 per cent.

Iata said it expected passenger carriers to lose between $63bn and $113bn in revenue in 2020, a much worse picture than it painted just two weeks ago when it predicted a hit of less than $30bn based largely on the reduction in flights to and from China.

“Since that time, the virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China,” Iata said in a statement.

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Its new scenarios are dependent on how bad the outbreak becomes, ranging from quick containment to a broader spread of Covid-19.

The virus helped push Europe’s largest regional carrier Flybe into administration in the early hours of Thursday morning, while Finnair said it has cancelled 1,100 flights because of the epidemic.

Rafael Schvartzman, regional vice-president at Iata, said Flybe’s demise is “proof that urgent action is required across Europe to protect air connectivity during a period of almost unprecedented crisis.”

The trade body on Monday called on regulators on Monday to suspend rules that mean carriers lose airport landing and take-off slots if they do not use them for 80 per cent of the time. Widespread cancellations would mean airlines stood to lose their slots or be forced to run empty services to keep their allocations.

“Temporary suspension of slot use rules and a cut in passenger taxes are crucial steps governments can take to help,” said Mr Schvartzman.

Its sharp downgrade of losses comes after passenger demand plunged sharply at the weekend, forcing carriers around the world to freeze hiring and slash the number of flights, including on lucrative transatlantic routes.

On Wednesday, Virgin Atlantic said it is cutting the pay of its chief executive by 20 per cent for four months, after it suffered a 40 per cent drop in customer demand compared with a year ago — a sign that the virus is hitting demand for transatlantic flights, not just short-haul flights in Europe.

European airlines have stepped up flight cancellations in recent days, with British Airways slashing more than 400 flights between March 16 and 28 to countries including Italy, Germany and the US. Ryanair has also cut short-haul flights to Italy by up to 25 per cent between March 17 and April 8, while Lufthansa and easyJet reduced capacity last week.

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The trade body noted that airline share prices have fallen nearly 25 per cent since the outbreak began, some 21 percentage points greater than the decline that occurred at a similar point during the Sars crisis of 2003. It said its worst-case scenario, a loss of $113bn in 2020, would equate to a 19 per cent loss in worldwide passenger revenues — a scale equivalent to what the industry experienced in the global financial crisis.

Iata called on world governments to consider helping embattled carriers through the crisis. “Airlines are doing their best to stay afloat,” said Alexandre de Juniac, Iata’s chief executive. “As governments look to stimulus measures, the airline industry will need consideration for relief on taxes, charges and slot allocation. These are extraordinary times.”

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