The flight crew of the chartered flight that evacuated Singapore nationals out of Wuhan arrive at … [+]
By Khalid Usman and Douglas Carlucci, Oliver Wyman Transportation Practice
The Wuhan coronavirus has proved less deadly so far than the infamous SARS pandemic that spread around the world in 2003. But if it were to graduate to a pandemic — and it is already spreading exponentially faster than SARS — this current strain has more potential to curb the outlooks for both aviation and the global economy than its predecessor did.
For one thing, travel has made the world far more interconnected than in 2003, accelerating the rate of infection. China — the starting point for both viruses — has become the world’s largest outbound tourism market and one of the engines driving the global economy. In the intervening years since the SARS outbreak, global airline capacity into China is 3.8 times larger than it was in 2005. China flights now account for 12 percent of total worldwide available seat kilometers versus only five percent 15 years ago, according to PlaneStats.com, Oliver Wyman’s aviation data portal.
In 2003, because of the SARS outbreak, airlines worldwide saw a decline in traffic with those operating out of Asia Pacific losing as much as eight percent on an annual basis, according to the International Air Transport Association (IATA). That amounts to a reduction of 39 billion revenue passenger kilometers — a standard metric for air traffic volume. The outbreak cost those airlines around $6 billion in lost revenue. In North America, the loss to airlines was around $1 billion as revenue passenger kilometers dropped 12.8 billion, or 3.7 percent of total international traffic, IATA reported.
According to PlaneStats.com, Asian airlines currently have the biggest capacity exposure to China, at 30 percent of all the available seat kilometers. Second are airlines operating out of Australia and New Zealand with 11 percent. Europe has 4.5 percent; North America, 4 percent; the Middle East, 3.6 percent; and Africa, 3.1 percent.
Cancelling flights
As of January 30, at least 43 airlines had cancelled some or all flights into China in response to the spread of the deadly respiratory ailment, known as 2019-nCoV, and nations around the world have been evacuating their citizens. Consumers are also avoiding travel to China even when flights are available. With only five confirmed cases in the United States, a survey out of the University of Florida found 19 percent of Americans changing bookings on travel plans in the next three months because of the virus, and another 52 percent said they are worried about international travel.
As 2020 began, the aviation industry globally was already looking forward to slowing demand for air travel, reflecting in part a general deceleration in economic growth around the world. The industry outlook is still profitable, although margins continue to be under pressure. After a decline in global air cargo in 2019 caused by an escalating trade war between the United States and China, a tentative truce brightened the outlook and encouraged many to predict that the risk of recession was dissipating.
China’s growth, as well as the expansion of its middle class, has been fueling the expansion in global aviation for several years. But even before the Wuhan coronavirus, the Chinese economy had been showing signs of slowing down with several forecasts calling for GDP growth in 2020 under six percent. Already in 2019, China reported its slowest growth rate in almost 30 years. In 2003, the SARS coronavirus cut global economic activity by $33 billion, and that was when China only accounted for four percent of global output. Today its share is more than four times that.
Escalating numbers
China is being far more proactive in its efforts to contain the spread of the virus than it was during the SARS pandemic. In response to the Wuhan virus, China has already restricted the mobility of some 60 million of its citizens by putting 16 cities in lockdown, including the city of Wuhan, one of the largest cities in China and a major industrial hub where 11 million people live.
The virus restrictions hit China at a particularly unfortunate time — during Lunar New Year when much of the country travels to visit relatives and tourists come to celebrate. Thanks to the closures of factories and other businesses throughout China and China’s dominant role in the global supply chain, many are predicting temporary disruptions in manufacturing globally because of the virus.
Even with the closures, the virus is spreading fast. Since the first case in December, the disease has infected more than 9,700 people worldwide in less than two months — already more than the 8,098 infected during the SARS outbreak between November 2002 and July 2003. And the number is moving up daily. Most of the sick are in China, but at least 21 nations have reported cases, including Taiwan, Japan, Vietnam, the United States, Germany, Singapore, and South Korea. As of January 30, 213 people had died — all in China. No vaccine has been developed yet.
While the economic repercussions from this outbreak are likely to be short lived as was the impact from the SARS pandemic, the disease is hitting at a time when the global economy is somewhat fragile and investors nervous.
Khalid Usman is a senior vice president with Oliver Wyman’s transportation practice. Douglas Carlucci is a partner in Oliver Wyman’s transportation and digital practices.
