Coronavirus to affect aviation industry of both China and wider region

When the SARS virus epidemic broke out in China in 2002, it not only claimed 774 lives, but also took a toll on businesses — among the casualties was also the region’s airline industry. Cathay Pacific, Hong Kong’s main carrier, was within days of shutting down when the crisis began to abate. However, recovery of airlines and the economy post the containment of the outbreak was quick and strong.

But that was in 2003. Today, China, the airlines of the region, the industry and the linkages amongst countries and carriers are a very different animal. China is soon expected to displace the US as the world’s largest aviation market. In the last few years China has seen a proliferation of airlines, including low cost carriers (LCCs) – up to almost 30 carriers.

In 2003, China was not the economic powerhouse it is now, so business travel from other countries to and from the country was far lower. Today, Chinese carriers take traffic from across the globe. Similarly, once China found its feet as a nation, its citizens set out to discover the world. By 2016, Chinese tourists accounted for 21 per cent of the world’s international tourism spending.

As China began to discover the world and vice versa, Hong Kong and Mainland China were discovering each other. By 2016, a majority of the tourists coming into China were from Hong Kong, Macau and Taiwan. For Hong Kong, the numbers are even more dramatic. Of the 60 million visitors to Hong Kong in 2014, 47 million were from the Mainland. In 2019, 28 per cent of tourists into Thailand were from China. With China under lockdown, Vietnam, South Korea, Taiwan and Japan are also likely to see a significant drop in tourist inflows.

But analysts say that the impact of the outbreak may be felt further away as well. Even if flight disruptions and losses due to diminished traffic are not significant, both aircraft manufacturers – Airbus and Boeing – are likely to take a hit as the airlines of the region stop or delay new plane deliveries.

It is, therefore, safe to say that the outbreak will have a severe impact on the tourism and aviation industry of both China and that of the wider region.

International Air Transport Association (IATA) data shows a fall in global traffic numbers in January 2020. According to its estimates, global revenue losses for the passenger business in 2020 will be between $63 billion and $113 billion. The first estimate refers to a scenario where Covid-19 is contained in current markets and the higher figure refers to a scenario where the virus has spread widely.

Chinese air traffic has already taken a huge knock. The number of weekly international seats between China and the rest of the world fell by 80 per cent during January and March 2020, according to CAPA data. Flights between Shanghai and Beijing – a bit like India’s Delhi and Mumbai – have sharply declined since the outbreak. Outbound, inbound and domestic travel have virtually come to a standstill.

This will impact all hub carriers in the region, several of whom rely substantially on Chinese traffic. Perhaps the only silver lining is the fact that the disruption will be more thinly spread across airlines since there are so many more carriers in the fray since the SARS outbreak nearly two decades ago. A CAPA report argues that recovery post the outbreak may be slower than it was at the time of SARS as the global economic situation is very different now. In 2004, the Chinese economy bounced back quickly as its growth rate was in double digits.