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Monday, January 30, 2023

Fears Over COVID-19 Could Turn a Public Health Crisis Into an Economic Crisis

The International Air Transport Association (IATA) announced that its initial assessment of the impact of COVID-19 shows a potential 13% full-year loss of passenger demand for carriers in the Asia-Pacific region. Considering that growth for the region’s airlines was forecast to be 4.8%, the net impact will be an 8.2% full-year contraction compared to 2019 demand levels. In this scenario, that would translate into a $27.8 billion revenue loss in 2020 for carriers in the Asia-Pacific region—the bulk of which would be borne by carriers registered in China, with $12.8 billion lost in the China domestic market alone.

In the same scenario, carriers outside Asia-Pacific are forecast to bear a revenue loss of $1.5 billion, assuming the loss of demand is limited to markets linked to China. However, in recent days COVID-19 has spread further in countries including Italy (which has more than 800 cases and 21 fatalities as of February 29) and Iran, and reached new regions including the Netherlands and New Zealand, so it is likely that loss of demand will not be restricted to Chinese markets. This conservative estimate would bring total global lost revenue to $29.3 billion (5% lower passenger revenues compared to what IATA forecast in December) and represent a 4.7% hit to global demand. In December, IATA forecast global RPK growth of 4.1%, so this loss would more than eliminate expected growth this year, resulting in a 0.6% global contraction in passenger demand for 2020.

These estimates are based on a scenario where COVID-19 has a similar V-shaped impact on demand as was experienced during SARS. That was characterized by a six-month period with a sharp decline followed by an equally quick recovery. In 2003, SARS was responsible for the 5.1% fall in the RPKs carried by Asia-Pacific airlines.

The International Civil Aviation Organization has estimated that more than 130 airline companies have reduced or cancelled flight operations to and from mainland China since the start of the COVID-19 outbreak in January.

The flight cancellations have led to a decrease in around 17.2 to 20.6 million passengers in the first quarter compared with previous estimates.

IATA’s estimated impact of COVID-19 assumes that the center of the public health emergency remains in China. If it spreads more widely then impacts on airlines from other regions would inevitably be larger.

Governments are expected to use fiscal and monetary policy to try to offset the adverse economic impacts. Some relief may be seen in lower fuel prices for some airlines, depending on how fuel costs have been hedged. The Singapore government, for example, is allocating SGD 112 million to provide financial relief to airlines and the aviation sector struggling to economically maintain connectivity. 

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority. Airlines are following the guidance of the World Health Organization (WHO) and other public health authorities to keep passengers safe, the world connected, and the virus contained. The sharp downturn in demand as a result of COVID-19 will have a financial impact on airlines and cause the first overall decline in demand since the Global Financial Crisis of 2008-09.” said Alexandre de Juniac, IATA’s Director General and CEO.

Travelers should be reassured that cabin air is filtered, that aircraft are cleaned in line with global standards, that key airports have implemented temperature screening for travelers and that airline staff and crew are trained to deal with the rare case of a passenger presenting with symptoms of infection.

“If you are sick, don’t travel. If you have flu-like symptoms, wear a mask and see a doctor. And when you travel wash your hands frequently and don’t touch your face. Observing these simple measures should keep flying safe for all,” said Dr. David Powell, IATA’s Medical Advisor.

Airports Council International Asia-Pacific director-general Stefano Baronci said the impact of travel bans and restrictions in response to the outbreak is having a drastic impact on scheduled capacity. “It is concerning that China, which contributed close to 60% of the 2019 traffic increase, will no longer be able to fuel growth in this first part of 2020.”

In the early stages of the outbreak, several airports in the United States and elsewhere stopped accepting flights from the Wuhan region where COVID-19 originated. This then progressed to banning several flights from and to China. Other measures include thermal imaging scanning, requiring travelers to complete questionnaires, isolating those with symptoms at dedicated facilities, and deep cleaning the airport environments.

At Prague Airport in the Czech Republic, all passengers arriving from Italy are using separate gates. Staff are closely monitoring passengers arriving from Italy and reporting any signs of respiratory disease to airport security. Arrival gates, buses and other areas handling passengers from Italy are also frequently disinfected.

London’s Heathrow Airport is taking similar additional precautions. CEO John Holland-Kaye told the BBC that the airport is taking measures beyond those recommended by Public Health England to make sure people stay safe and are reassured, adding that Heathrow is deep cleaning public areas, cleaning its handrails, as well as making sure that supplies of hand sanitizer are available to staff and passengers.

Now that the virus has a global hold, airports need to potentially monitor every passenger from every flight without unnecessarily restricting travel. They must be vigilant whilst reassuring concerned and confused travelers. It is a tall order, not insurmountable, but the economic impact will long be felt and not helped by the news that air cargo traffic suffered a decline in 2019.

Passengers can help airlines and the economy by following the advice given by WHO and IATA.

Kylie Bielby
Kylie Bielby has more than 20 years' experience in reporting and editing a wide range of security topics, covering geopolitical and policy analysis to international and country-specific trends and events. Before joining GTSC's Homeland Security Today staff, she was an editor and contributor for Jane's, and a columnist and managing editor for security and counter-terror publications.

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