American & Chinese Airlines May Never Bounce Back From The Coronavirus Outbreak
by Tyler Durden
ZeroHedge.com
Wed, 01/29/2020
Airlines around the world have already taken a hit thanks to Boeing, now the coronavirus outbreak is set to kick the industry while it’s already down. And the US and China will be hit especially hard.
Plenty of countries are cutting off are limiting flights to China right now. Air Canada just announced its cancelling select flights, South Korea, Hong Kong and other Asian countries have either cut off travel, or are reducing flights and screening for symptoms of nCoV, which has already killed more than 100 people in China, and possibly a Thai woman in India as well. But when it’s all said and done, air traffic between the US and China might never really recover, dealing a serious blow to both Chinese and American airlines at a time when their shares are already taking a beating.
In a recent column, Forbes contributor Michael Boyd warned that air said that even with solid data, is full of unknowns. But one thing we can rely upon in aviation forecasting is that it’s unforeseen factors that suddenly spring out of left field that will drive change.
Two years ago, the future looked bright. China’s burgeoning middle class was traveling more, and the US was a perennial favorite destination, not just for students, but for travelers and shoppers looking to buy luxury goods on NYC’s Fifth Avenue, or SoHo.
But by the middle of 2019, with the trade war, having raged for more than a year, in full swing, China’s economy started to show signs of strain, as growth started to cool from a frantic, often double-digit pace of expansion, eventually notching its weakest quarter of growth in 29 years.
However, the slowdown from the trade war and the drag of China’s economy at least allowed the airlines to easily model slowing traffic and coordinate accordingly. Now, that’s all gone out the window: the coronavirus has arrived and that’s created many new unknowns.
After the bell on Tuesday, Starbucks announced that the coronavirus will likely hurt growth in its international business, which is heavily dependent on China. The chain seemed to already have its hands full competing against a slew of new local competitors.
It’s a virtual certainty that the airlines will follow up with similar warnings, though theirs will likely be much more dismal, and preceded by a wave of downgrades to the Street’s projections.
Boyd, whose analysis focuses on the airline industry, said his previous forecast of 7.08 million passengers on US-China flights in 2020 is “now history,” and he barely knows where to begin to put together the next set of forecasts. The damage will linger for six months or longer, he added.
Take it to the bank: this epidemic will materially affect the flight levels between China and the United States, because airlines don’t like to fly nearly-empty airplanes.
Perhaps the word “affect” is too weak. The reality is that this event is going to devastate traffic for a period of at least six months or maybe longer. It will depend on how much this epidemic spreads, and how the Chinese government addresses it.
My consultancy had estimated that U.S.-China flights would carry about 7.08 million passengers for 2020, adding inbound and outbound travelers.
That number is now history.
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