When IATA outlined its latest estimates for the impact of coronavirus on the airline industry on 24 March, the urgency of the situation was front and centre of its messaging.

In the industry association’s view, this is not the time for quibbling over minor details and nuance – either governments step in to help airlines through this crisis, or the whole sector risks being “shuttered”.

It points out that markets with severe restrictions on air travel currently cover 98% of global passenger revenues. Therefore, in a situation where “the typical airline had two months of cash at the start of this year”, this is an “apocalypse now” scenario.

“Airlines are fighting for survival in every corner of the world,” states IATA director general Alexandre de Juniac. “Travel restrictions and evaporating demand mean that, aside from cargo, there is almost no passenger business. For airlines, it’s apocalypse now. And there is a small and shrinking window for governments to provide a lifeline of financial support to prevent a liquidity crisis from shuttering the industry.”

WHY A GLOBAL RECESSION MIGHT BECOME THE NEXT CHALLENGE

Beyond this initial period of need, however, IATA also highlights a vital detail regarding this pandemic: unlike other outbreaks seen in recent history, it is likely to cause a global recession.

For many airlines, the passing of the coronavirus – and there is clearly no guarantee of when this will happen – might herald the beginning of a new crisis as economic conditions worsen.

For IATA’s chief economist Brian Pearce, this means the industry could experience something more akin to a “U-shaped” recovery, rather than the “V-shaped” one seen after the SARS outbreak in 2002-03, for example.

Pearce explains that in previous pandemics, “we’ve seen the worst point three months after the crisis and then three to four months after that a return to pre-crisis levels”.

The difference with the current outbreak is that “we have never seen a pandemic coincide with the deep global recession that is now expected. That will delay recovery, so it will be a much more gradual upward slope”.

The global nature of the current pandemic also means that there will not be a coherent recovery, either, further exacerbating the negative impacts. Individual countries and regions will come back online at different rates and at different times, reducing the chance of a quick, global bounce-back.

Indeed, IATA points to data from Oxford Economics that suggests global GDP growth could be negative in 2020 – a situation last seen in 2009 amid the global economic crash.

GLOBAL CAPACITY TAKES BIG HIT

IATA’s latest modelling on the coronavirus’s impact is therefore based on a 65% year-on-year fall in global airline capacity in the second quarter of 2020. Europe is worst hit – with operations all-but grounded – while North America and Asia-Pacific would each see 50% reductions.

The situation does begin to improve from that point under IATA’s current outlook, but Pearce is clear that “the recession will delay the recovery”.

Under its current assumptions, IATA expects global capacity to be down around 33% in the third quarter and 10% in the fourth.

All the while, yields are expected to be lower year-on-year, with IATA noting that reducing ticket prices – a well-worn tactic that works to stimulate demand in most scenarios – is not attracting passengers back to air travel.

Overall, IATA estimates that the coronavirus outbreak will lower airline revenues from passenger operations by $252 billion in 2020 – more than double its earlier worst-case-scenario estimate of $113 billion.

That equates to a 44% fall in passenger revenues from 2019 and is driven by a 38% reduction in global traffic measured in RPKs year-on-year and falling yields.

HOPE THAT NEXT YEAR MIGHT SEE A STRONGER RECOVERY

On a positive note, the industry association highlights analysis suggesting that 2021 could see a strong economic recovery amid fiscal and central bank stimulus.

It also cites the beginnings of a recovery in China’s domestic airline market. 

But, for now, “we’re faced with an extraordinarily sharp downturn”, Pearce states.