Check in counters are seen at Hong Kong International Airport in Hong Kong, China, on Monday, Feb. 17, 2020.

Airlines warn of first global traffic drop since 2009

Check in counters are seen at Hong Kong International Airport in Hong Kong, China, on Monday, Feb. 17, 2020.

The airline industry expects the first annual decline in global passenger demand in 11 years, after tallying up the initial impact of the thousands of flights cancelled because of the coronavirus outbreak in China.

People wearing masks walk at Hong Kong Station at Central district of Hong Kong, China, on Wednesday, January 29, 2020.

The estimate shaves about 4.7 percentage points off of a passenger-traffic 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 losses 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 Thursday. “Airlines are making difficult decisions to cut capacity and in some cases routes.”

Passengers wearing protective masks walk through the arrival hall at West Kowloon Station, operated by MTR Corp., in Hong Kong, China, on Tuesday, Jan. 28, 2020. Photographer: Justin Chin/Bloomberg

The drop would be the first overall decline since the financial crisis of 2008-2009. Global passenger demand is now seen contracting by 0.6 per cent this year, compared with a December forecast for 4.1 per cent growth, IATA said.

Revenue Drag

While it’s too early to forecast the impact on profitability, IATA said the outbreak will shave about $30 billion from revenue, with the impact most severe on Chinese airlines. 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.

Qantas has cut flights to Asia amid slowing demand due to the outbreak.

Under the plan, China would sell the bulk of HNA’s airline assets to the country’s three biggest carriers — Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp., people familiar with the matter have said. HNA-backed Suparna Airlines is also likely to be unloaded to the Jiangsu provincial government, the people said.

Airlines have scrapped flights to China and about 80 per cent 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.

China’s economy was likely running at just 40 per cent to 50 per cent capacity last week, according to a Bloomberg Economics report, after efforts to contain the spread closed stores, brought factories to a halt and triggered a virtual shutdown of the airline industry. Employers have encouraged people to stay home, shopping malls and restaurants are empty, and amusement parks and theatres are closed.