Effects of Novel Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis Montréal, Canada 6 March 2020 2 Contents Introduction and Background Scenario Analysis: Mainland China Scenario Analysis: Hong Kong SAR of China and Macao SAR of China Summary of Scenario Analysis: China Scenario Analysis: Republic of Korea Scenario Analysis: Italy Preliminary Analysis: Iran (Islamic Republic of) and Mongolia 3 Summary of updated estimates at a glance Estimated impact of COVID-19 outbreak on scheduled international passenger traffic during 1Q 2020 compared to originally-planned: China (including Hong Kong/Macao SARs): 41 to 42% seat capacity reduction, 23.9 to 27.5 million passenger reduction, USD 5.8 to 6.7 billion loss of gross operating revenues of airlines Republic of Korea: 24% seat capacity reduction, 5.3 to 6.0 million passenger reduction, USD 1.1 to 1.2 billion loss of gross operating revenues of airlines Italy: 8% seat capacity reduction, 1.9 to 2.9 million passenger reduction, USD 0.26 to 0.37 billion loss of gross operating revenues of airlines Iran (Islamic Republic of)*:12% seat capacity reduction, 0.11 million passenger reduction, USD 22 million loss of gross operating revenues of airlines * February 2020 only 4 Introduction and Background Scheduled commercial traffic Total (international and domestic) services 5 Source: ICAO Annual Report of the Council Air traffic has been vulnerable to external factors including disease outbreaks 6 What can we learn from past experience? SARS, Aviation flu and MERS Source: IATA Economics Chart of the Week (24 January 2020) History shows that SARS has the most serious impact on traffic. At the height of the outbreak (May 2003), monthly RPKs of Asia-Pacific airlines were 35% lower than their pre-crisis levels. Overall in 2003, Asia-Pacific airlines lost 8% of annual RPKs and $6 billion of revenues. 187 259 336 559 621 680 755 832 916 1,016 1,148 1,266 -2004006008001,0001,2001,400 2003 2006 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Total number of passenger moved through Chinese airports 2003-2018 (million of passengers) SARS 138 702 50 114 0 100 200 300 400 500 600 700 800 900 2003 2018 Passengers move to/from Chinese airports 2003 vs 2018 Domestic passengers International Passengers Annual average growth rate: 9.6% Chinese international traffic more than doubled since 2003 SARS spread Source: ICAO-ACI Airport traffic data 7 Chinese economic size quadrupled since 2003 but growth rate slowed down Source: World Bank Group 8 GDP of China (constant 2010 USD, trillion) GDP Annual Growth of China (%) SARS SARS China is more integrated in the global economy Source: OECD Interim Economic Outlook dated 2 March 2020 9 The drop in Chinese travellers will hit hard Source: OECD Interim Economic Outlook dated 2 March 2020 10 11 Air connectivity of China in terms of O-D passenger movement Source: ICAO-ICM MIDT data 12 Air connectivity of Wuhan airport in terms of O-D passenger movement Source: ICAO-ICM MIDT data Source: forwardkeys COVID-19 outbreak caused a substantial setback in flight bookings for Chinese New Year 13 Source: CARNOC (retrieved on 1 March 2020) Flight cancellation has exceeded actual operations since 31 January 2020 14 Number of cancellation Number of originally-planned flights Number of actual operations Note: The above includes a) international from mainland China, Hong Kong SAR of China, Macao SAR of China, Taiwan, Province of China; b) domestic within mainland China, and c) regional between mainland China and Hong Kong SAR, Macao SAR and Taiwan Province 15 Scenario Analysis: Mainland China This is a preliminary analysis. Figures and estimates herein will be updated with the situation evolving and more information available. 16 Scope of analysis: Mainland China “International” refers to scheduled international passenger services from/to mainland China excluding: scheduled passenger services between mainland China and Hong Kong Special Administrative Region (SAR) of China, Macao SAR of China and Taiwan, Province of China; and scheduled international passenger services from/to Hong Kong SAR, Macao SAR of China and Taiwan, Province of China “Regional” refers to scheduled passenger services: between mainland China and Hong Kong SAR of China between mainland China and Macao SAR of China; and between mainland China and Taiwan, Province of China Number of seats offered by airlines (monthly, 2019) Source: OAG Scheduled data 17 Capacity share 2019 45%: International by Chinese carriers 37%: International by foreign carriers 9% Regional (mainland China - Hong Kong SAR) 3% Regional (mainland China - Macao SAR) 7% Regional (mainland China - Taiwan Province) Number of seats offered by airlines (1Q 2020 originally-planned) Source: OAG Scheduled data 18 Capacity share 1Q 2020 48%: International by Chinese carriers 36%: International by foreign carriers 7% Mainland China - Hong Kong SAR 3% Mainland China - Macao SAR 6% Mainland China - Taiwan Province 19 Over 130 airlines reduced international services or cancelled all operations from/to mainland China Source: Routes Online, OAG and airline websites (as of 6 March 2020) Announced since late January 2020; Duration varies *: Airlines with all service Cancelled *: Airlines with all service cancelled but gradual resumption 20 Scenario analysis of COVID-19 outbreak impact for 1Q 2020 Baseline (hypothetical situation without COVID-19 outbreak) Seat capacity: used “originally-planned“ winter schedule Load factor: used 2018 actual results of airlines (average) Scenario 1 (mild) Seat capacity: estimated by airlines' schedule changes Load factor: used 2018 actual results of airlines except Hong Kong SAR of China Scenario 2 (severe) Seat capacity in January and February: estimated by airlines' schedule changes Seat capacity in March: assumed summer schedules not starting from 29 March Load factor: 12 22 and 7 17 percentage points lower in February and March from January, respectively 21 Scenario analysis: Assumptions Seat capacity reduction from originally-planned Passenger load factor Seat capacity reduction from originally-planned Passenger load factor Seat capacity reduction from originally-planned Passenger load factor International from/to mainland China (Chinese carriers) 0% 78% -1% 78% -1% 78% International from/to mainland China (Foreign carriers) 0% 80% 0% 80% 0% 80% Regional between mainland China and Hong Kong SAR of China 0% 80% 0% 70% 0% 70% Regional between mainland China and Macao SAR of China 0% 80% -1% 80% -1% 80% Regional between mainland China and Taiwan, Province of China 0% 80% -1% 80% -1% 80% International from/to mainland China (Chinese carriers) 0% 78% -57% 78% -57% 58% International from/to mainland China (Foreign carriers) 0% 80% -64% 80% -64% 65% Regional between mainland China and Hong Kong SAR of China 0% 80% -65% 70% -65% 58% Regional between mainland China and Macao SAR of China 0% 80% -67% 80% -67% 58% Regional between mainland China and Taiwan, Province of China 0% 80% -60% 80% -60% 58% International from/to mainland China (Chinese carriers) 0% 78% -73% 78% -76% 63% International from/to mainland China (Foreign carriers) 0% 80% -76% 80% -78% 70% Regional between mainland China and Hong Kong SAR of China 0% 80% -80% 70% -82% 63% Regional between mainland China and Macao SAR of China 0% 80% -64% 80% -67% 63% Regional between mainland China and Taiwan, Province of China 0% 80% -80% 80% -82% 63% Assumptions Baseline Scenario 1 Scenario 2 January 2020 February 2020 March 202022 Source: OAG scheduled data Baseline: 10% seat capacity increase compared to 1Q 2019 A total of YoY 10% seat capacity increase originally - planned for 1Q 2020 despite the reduction of capacity between mainland China and Hong Kong SAR and Taiwan Province Impact of Hong Kong protests 23 Scenarios 1 International (Foreign carriers): assumed 15% higher average fare than Chinese carriers; Regional: calculated with an average fare of USD 135 per passenger based on traffic/financial reports of CA, CZ and MU Scenario 1: USD 4.7 billion reduction Scenario 2: USD 5.2 billion reduction 27 Source: ICAO estimates Summary of estimated impact in 1Q 2020 The preliminary estimates indicate the impact in terms of scheduled international passenger traffic from/to mainland China (including between mainland China and Hong Kong SAR of China, Macao SAR of China and Taiwan, Province of China) during 1Q 2020 compared to originally-planned: Overall reduction of 45% of seats offered by airlines Overall reduction of 19.3 to 21.4 million passengers Approx. USD 4.7 to 5.2 billion potential loss of gross operating revenues of airlines Scope of analysis Scenario 1 Scenario 2 International from/to mainland China (Chinese carriers) -11,100 -42% -11,300 -43% -8,600 -42% -9,900 -48% -$2,160 -$2,460 International from/to mainland China (Foreign carriers) -9,000 -46% -9,200 -47% -7,200 -46% -7,800 -50% -$2,070 -$2,240 Regional between mainland China and Hong Kong SAR of China -1,900 -49% -1,900 -49% -1,700 -55% -1,800 -58% -$230 -$240 Regional between mainland China and Macao SAR of China -700 -44% -700 -45% -500 -44% -600 -50% -$70 -$80 Regional between mainland China and Taiwan, Province of China -1,500 -46% -1,500 -47% -1,200 -46% -1,300 -52% -$160 -$180 Total -24,100 -45% -24,600 -45% -19,300 -45% -21,400 -50% -$4,690 -$5,210 Scenario 1 Scenario 2 Scenario 1 Scenario 2 Estimated Impact on Number of seats offered by airlines (000) Number of passengers (000) Gross operating revenues of airlines (USD, million)28 Scenario Analysis: Hong Kong SAR of China and Macao SAR of China This is a preliminary analysis. Figures and estimates herein will be updated with the situation evolving and more information available. 29 Scope of analysis: Hong Kong SAR and Macao SAR “Hong Kong International” refers to scheduled international passenger services from/to Hong Kong Special Administrative Region (SAR) of China excluding: scheduled passenger services between Hong Kong SAR of China and mainland China, Macao SAR of China and Taiwan, Province of China “Macao International” refers to scheduled international passenger services from/to Macao SAR of China excluding: scheduled passenger services between Macao SAR of China and mainland China, Hong Kong SAR of China and Taiwan, Province of China “Cross-Strait” refers to scheduled passenger services among Hong Kong SAR of China, Macao SAR of China and Taiwan, Province of China excluding: “Regional” already included in the mainland China analysis Source: OAG Scheduled data 30 Capacity share 2019 78%: Hong Kong International 6%: Macao International 16%: Cross-Strait Number of seats offered by airlines (monthly, 2019) Source: OAG Scheduled data 31 Capacity share 1Q 2020 76%: Hong Kong International 7%: Macao International 17%: Cross-Strait Airlines originally planned to reduce seat capacity slightly due to the impact of Hong Kong protests and the continued trade tension. Number of seats offered by airlines (1Q 2020 originally-planned) 32 Some 70 airlines cancelled all services or reduced services from/to Hong Kong SAR and Macao SAR Source: Routes Online, OAG and airline websites (as of 6 March 2020) Announced since late January 2020; Duration varies *: Airlines with all service cancelled *: Airlines with all service cancelled but gradual resumption 33 Scenario analysis of COVID-19 outbreak impact for 1Q 2020 Baseline (hypothetical situation without COVID-19 outbreak) Seat capacity: used “originally-planned“ winter schedule Load factor: used the same percentage as “International from/to mainland China (Foreign carriers)“ and “Regional“ Scenario 1 (mild) Seat capacity: estimated by airlines' schedule changes Load factor: used the same percentage as Baseline Scenario 2 (severe) Seat capacity in January and February: estimated by airlines' schedule changes Seat capacity in March: assumed summer schedules not starting from 29 March Load factor: 22 and 17 percentage points lower in February and March from January, respectively 34 Scenario analysis: Assumptions Seat capacity reduction from originally-planned Passenger load factor Seat capacity reduction from originally-planned Passenger load factor Seat capacity reduction from originally-planned Passenger load factor Hong Kong International 0% 80% 0% 80% 0% 80% Macao International 0% 80% 0% 80% 0% 80% Cross-Strait 0% 80% 1% 80% 1% 80% Hong Kong International 0% 80% -25% 80% -25% 58% Macao International 0% 80% -67% 80% -67% 58% Cross-Strait 0% 80% -52% 80% -52% 58% Hong Kong International 0% 80% -55% 80% -60% 63% Macao International 0% 80% -75% 80% -77% 63% Cross-Strait 0% 80% -83% 80% -85% 63% Scenario 2 March 2020 Assumptions Baseline Scenario 1 January 2020 February 202035 Source: OAG scheduled data Baseline: 5% seat capacity reduction compared to 1Q 2019 A total of YoY 5% seat capacity reduction originally - planned for 1Q 2020 due to the expectation of continued weak demand for Hong Kong SAR and Taiwan Province Impact of Hong Kong protests 36 Scenarios 1 Macao International: calculated with an average fare of USD 172 per passenger; Cross-Strait: calculated with an average fare of USD 135 per passenger (i.e. the same as “Regional”) Scenario 1: USD 1.1 billion reduction Scenario 2: USD 1.5 billion reduction