With the coronavirus pandemic destroying demand for air travel, the airlines that have not long ago been bent on their knees around the world. This is because passenger income, the largest component of their top line, receives a big blow from shrinking air travel demand.
Due to the spread of coronaviruses by geometric developments, travel blanket bans are imposed by governments throughout the world. With several countries locked up, most people are prohibited from traveling in an effort to stay safe and avoid contracting highly contagious diseases from fellow passengers.
According to the International Air Transportation Association (IATA), passenger traffic around the world in February recorded the sharpest year-on-year decline in two decades. Specifically, demand (measured in total passenger kilometer revenue or RPK) fell 14.1% in a month from year to year, signaling the sharpest monthly decline since the feared 9/11 terror attacks in the United States in 2001.
With operators around the world cutting capacity to compensate for the very low demand scenario, overall capacity (available seat kilometers or ASK) is down 8.7% in the second month of the year. With traffic declining at a faster rate than capacity reduction for the month, the load factor (% of seats filled with passengers) contracted 4.8 percentage points to 75.9%.
In the international passenger market, demand deteriorated 10.1% in February on a year-to-year basis. Regarding international passenger demand, this level has reached a nadir since the SARS outbreak in 2003. Demand for domestic travel decreased by 20.9% during the month mainly due to weaknesses in Chinese domestic traffic. This is because in February, China bore the worst burden of the deadly coronavirus.
We hope that global traffic performance has touched its lowest point in March given that the COVID-19 outbreak was declared a pandemic by WHO that month. With demand for air travel collapsing, the Zacks Airline industry dropped 52.4% in March.
Other operators based in the U.S. such as American Airlines AAL and United Airlines UAL canceled most of their flights because of the shrinking demand for air travel because this pandemic continues to spread its tentacles throughout the world, claiming many lives and infecting the global population at large. This situation is exemplified by RYAAY’s anticipation of European carrier Ryanair Holdings that its fleet will remain largely flown at least in April and May. To combat the threat caused by the corona virus, Latin American carriers Avianca Holdings AVH and Copa Holdings CPA temporarily closed all passenger operations.
IATA Director General and CEO Alexandre de Juniac rightly called the current impasse the “biggest crisis the industry has ever faced”. Due to widespread flight cancellations, IATA projects airlines to burn up to $ 61 billion of their cash reserves during the second quarter of 2020. Passenger demand is likely to drop 71% in the April-June period. In fact, because of this depressed demand, IATA anticipates airline passenger revenue, the largest component of their main line, which will decrease by $ 252 billion by 2020.
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