Airlines Foresee First Global Traffic Drop Since 2003 on Virus

The airline industry expects the first annual decline in global passenger demand in 17 years, after tallying up the initial impact of the thousands of flights canceled because of the coronavirus outbreak in China.

The estimate shaves about 4.7% off of a passenger-growth forecast issued just two months ago, with almost all of the impact in the Asia-Pacific region, according to the International Air Transport Association. That may be conservative. The projections assume the loss of demand will be limited to markets linked to China.

“This will be a very tough year for airlines,” Alexandre de Juniac, IATA’s director general, said in a statement. “Airlines are making difficult decisions to cut capacity and in some cases routes.”

The drop would be the first overall decline since the SARS outbreak in 2003. Global passenger demand is now seen contracting by 0.6% this year, compared with a December forecast for 4.1% growth, IATA said.

While it’s too early to forecast the impact on profitability, IATA said the outbreak will shave as much as $30 billion in revenue, 5% below the December estimate. The impact will be most severe on Chinese airlines, IATA said.

China’s government has stepped up efforts to contain the damage. Indebted conglomerate HNA Group Co. is expected to be taken over and its airline assets sold, Bloomberg News reported.

Airlines have scrapped flights to China and about 80% of the country’s domestic fleet is grounded because of the epidemic that is centered in Hubei province. About 1.7 million seats were dropped from China services from Jan. 20 to Feb. 17 by global carriers, according to OAG Aviation Worldwide. Meanwhile, Chinese airlines cut 10.4 million seats domestically.

While the impact will be felt strongest in China, carriers outside of Asia-Pacific would lose about $1.5 billion in revenue, IATA said. A warning from Air France-KLM, which warned the outbreak will wipe as much as 200 million euros ($216 million) from earnings, hammered home the point on Thursday.