Virus may slash $29 billion from airlines’ revenue

Cathay Pacific has been badly hit by the virus outbreak. (Supplied)
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Updated 22 February 2020

Virus may slash $29 billion from airlines’ revenue

TOKYO: The outbreak of the coronavirus  threatens to erase $29 billion of revenue for global airlines, mostly for Chinese carriers, as travel crashes worldwide, according to the International Air Transport Association (IATA).

The trade group for global airlines said Thursday that the virus causing COVID-19 had the potential to cause a 13 percent decline in demand for Asian carriers this year.

The contraction comes following following a period of sales growth for Asian airlines.

Global air traffic will be reduced by 4.7 percent for the year, marking the first overall decline in demand since the financial crisis of 2008, the IATA said. How profits will be affected was still unclear.

The estimates foresee a scenario where COVID-19 has a “V-shaped impact,” similar to what happened during the SARS virus outbreak in 2003, with a sharp dive followed by a quick recovery, according to IATA.

International airlines including the UK’s British Airways, Germany’s Lufthansa, Australia’s Qantas and the three largest US airlines have suspended flights to China, in some cases until as late as April or May.

Cathay Pacific asked employees to take three weeks of unpaid leave to help it weather the crisis.

Travel restrictions inside China and fear of the illness have devastated demand for domestic flights in the fast-growing China market.

Many nations are warning people not to travel to China, or barring travelers from China, especially from the Wuhan area, at the center of the outbreak.

People around the world are also voluntarily scaling back travel, while some governments and health experts are encouraging people to stay indoors not only in China but also South Korea and Japan to avoid getting infected.

“These are challenging times for the global air transport industry. Stopping the spread of the virus is the top priority,” said Alexandre de Juniac, IATA’s Director General and CEO. “This will be a very tough year for airlines.”

Analysts at Cowen, a US investment bank and financial services company, noted IATA might be underestimating the impact on Asia travel outside of China, noting the recent reports of dozens of cases in South Korea.

“While still relatively small, and too early to tell if it will spread further, we see this as a material negative data point on the global containment of the virus,” the report said.


Virtual oil summit planned amid ongoing market volatility

Updated 04 April 2020

Virtual oil summit planned amid ongoing market volatility

  • Meeting follows call from Saudi Arabia for urgent meeting and telephone diplomacy between Kingdom, Russia and the US

DUBAI: Leaders of the global oil industry are planning a crucial “virtual” summit next Monday amid ongoing volatility in crude prices and falling energy demand.

The meeting follows a call from Saudi Arabia on Thursday for an urgent meeting and a round of telephone diplomacy last week involving the Kingdom, Russia and the US, as well as meetings between policymakers and oil industry executives.

The summit is expected to involve the 11 members of OPEC as well as other oil producers from the OPEC+ group.

But exactly which countries will take part in the summit was still up in the air last night. 

Russian President Vladimir Putin was holding talks with executives from the country’s major oil companies before deciding whether or not to participate. The Russian leader has previously indicated his willingness to get involved in talks to help resolve the crisis in the global energy industry, but Russia was also the country that refused to take part in a round of deeper production cuts proposed by Saudi Arabia in Vienna last month, sparking the current price war.

In response to that refusal, the Kingdom increased production and lowered its selling prices. On Sunday, Saudi Aramco, which has pushed output to a record 12.3 million barrels per day, is scheduled to announce its “official selling prices” (OSP) for the month of May, expected to show a continuation of the deep levels of discount to attract customers, especially in Asia, in the battle for global market share. 

Brent crude continued its rollercoaster ride on global markets on Friday, dipping nearly 5 percent before hitting a high of 17.5 percent up at $34.91, before paring gains to about $33.

The options for the producers at Monday’s meeting are limited, in the face of an unprecedented drop in global oil demand. By some estimates, more than 20 million barrels of daily demand was lost last month, the biggest ever contraction in oil history.

Saudi Arabia and Russia, which between them produce around 23 million barrels per day, are unlikely to be willing to take all the pain of bigger cuts without an offer from the Americans.

US President Donald Trump tweeted on Thursday that he expected between 10 million and 15 million barrels of oil to be taken out of supply, but he did not specify where this would come from. Meetings were expected to take place at the White House with oil industry executives and policymakers on Friday.

Daniel Yergin, Pulitzer Prize-winning oil expert, said: “The ‘when,’ ‘how’ and ‘who’ of the potential deal remain unclear. And the larger the universe of players the more difficult it will be to implement an agreement.”

OPEC+ consists of the 11 OPEC members, led by Saudi Arabia, plus 10 non-OPEC producers, of which Russia is by far the biggest.

The involvement of the US in the Monday meeting is also unclear. America is not an OPEC member, but US oil executives have attended OPEC deliberations in the past. American participation in any new rounds of output cuts will be constrained by the fact that the US oil industry is made up of private companies — as opposed to state-directed corporations — whose interests diverge.

While big players including Exxon Mobil and Chevron might be willing to take some advice from the White House, the smaller companies in the Texas shale fields are more focused on the immediate financial repercussions of the past month’s volatility.