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Airlines face unparalleled blow from coronavirus outbreak

Edmund Heaphy
Finance and news reporter
Travels at departure gates at Frankfurt Airport, one of Europe's busiest airports. (EyesWideOpen/Getty Images)

Aviation industry stocks continued to fall on Friday, as airlines confront an almost unprecedented crisis in coronavirus that could cost them more than $100bn (£76.8bn) in lost revenue in 2020.

The outbreak of the virus claimed its first victim on Thursday, as an already unsteady Flybe collapsed under the weight of falling demand from travellers.

German airline Lufthansa (LHA.DE) cancelled more than 7,000 flights for the month of March alone, following announcements of dramatic service reductions from British Airways, Ryanair (RYA.L), EasyJet (EZJ.L), and Wizz Air (WIZZ.L).

Scandinavia’s SAS (SAS.ST) and Norwegian Air (NAS.OL) have also withdrawn their full-year earnings guidance.

The chief executive of American low-cost giant Southwest Airlines (LUV) compared the impact to the aftermath of the 11 September attacks, the last time the industry faced such a stark crisis.

Read more: Coronavirus pushes flagging Flybe into collapse, risking 2,000 jobs

“9/11 wasn’t an economically driven issue for travel. It was more fear, quite frankly, and I think that that’s really what’s manifested this time [with coronavirus],” said Gary Kelly.

The International Air Transport Association (IATA), an aviation industry trade group, said on Thursday that airlines could lose between $63bn (£50bn) and $113bn (£88bn) in revenues as a result of the coronavirus outbreak.

The prediction represented a sharp jump from last month, when it estimated that the industry would only lose $29bn.

If it is borne out, 2020 would be the worst year for the aviation industry since the financial crisis.

“The global airline sector’s market capitalisation has dropped by $40.6bn (£32bn), or 25%, in the last month alone,” said Russ Mould, the investment director at AJ Bell, on Friday.

Even before the outbreak, industry titans like Ryanair’s Michael O’Leary have been predicting failures and consolidations in the European airline industry, citing overcapacity, thin margins, and weak underlying performance.

The spread of the virus to Europe, which has sapped demand, depressed airfares, and forced sweeping flight cancellations, could thus push more airlines to the brink.

Businesses have restricted non-essential travel, and there has been a sharp decline in those booking flights for leisure travel.

Read more: European stocks plunge as coronavirus cases, cancellations and warnings rise

“This feels like a return to the bad old days, when airlines used to go bust at the drop of a hat,” said Mould.

Even stocks in the continent’s strongest players have suffered in recent days.

Shares in IAG (IAG.L), the owner of British Airways, whose margins are among the best in the industry, were among the worst performing in Europe on Friday.

Ryanair (RYA.L) fell by more than 3.7%, while those in low-cost counterpart EasyJet (EZJ.L) fell by more than 5%.

“Airlines — and their shareholders — will be hoping that these estimates prove to be a worst case,” said Mould, “but the truth is no-one knows what the ultimate impact will be.”