By Taylor Long
The Coronavirus has grounded planes across the country, halting big-name carriers like American Airlines, Delta, and United. This pause in air traffic isn’t unheard of as similar plane groundings took place during 2002 with the Severe Acute Respiratory Syndrome outbreak, and the expected deficit of tourism and travel will have a natural impact on GDP. There’s one large difference between the two events; the popularity of leisure travel and budget airline carriers.
The 7,700 infections and 170 deaths in 2002 from the SARS outbreak cost the global economy nearly 40 billion USD and led to a 45 percent decrease in air traffic for Asia-Pacific carriers in April that year. Fast forward nearly 18 years and travel demand has boomed and significantly expanded. Many budget carriers have begun operation and hundreds of millions of first-time fliers have begun to take the air. Both have led to an increase in leisure travel.
The news of major carriers, like American Airlines Group and Delta, has taken the news headline space, but what about these budget airlines? These airlines are going to be the ones that are hit the hardest, not the major groups because their business comes from leisure travel and smaller regional routes. With travel bans in place, there are not many additional routes these carriers can take to make up for their lost profit. These airlines are going to be hit the hardest, but these airlines aren’t making headlines; why?
During the last 18 years, nearly the entire leisure travel and budget airline markets were created, and the current and predicted impacts from the Coronavirus could severely impact or eliminate both markets. Before the virus outbreak and the accompanying travel ban, 19 out of 51 Asian airlines were unprofitable. Several airline shares are facing shocks, including the 15-member Bloomberg Asia Pacific Airlines Index which has fallen nearly 10 percent and China Eastern Airlines Co. which has fallen more than 17 percent.
These shocks throw serious wrenches into their pricing models. Budget airlines are based on huge growth and small margins of profitability. Only six Asian-based airlines have profit margins larger than 10 percent. Those who will be first to travel after the lift of a travel ban are not going to be leisure travelers jumping on budget carriers, they’re going to be business and necessity travelers flying on big-name carriers.
A familiar theme is appearing here, perhaps Darwin’s survival of the fittest is ringing a bell. Many of these airlines are not going to be able to keep operations going. The question to ask is whether the damage to the entire leisure travel and budget airline markets is going to be irreparable, and if that is the case, how long it will take for them to be repaired. Regional competition exists, and with this significant blow, the Asian leisure travel and budget airline markets will soon be unable to compete with European carriers like Ryanair, EasyJet and Wizz Air.
International air travel in and out of China, now 10 times what it used to be in 2002, is likely to take devastating hits. These impacts will significantly reduce the choice options for leisure travel, and make their operations incomparable to European and Australian equivalents. Nonetheless, these in-danger airlines should be talked about as the entire 18-year development of a niche market has the potential to be eliminated due to the Coronavirus.
Long is a senior Political Science major with a double minor in Economics and Data Analytics
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