For some airlines, the Coronavirus outbreak may actually bolster profit, not inhibit it.
While the focus has been on service suspensions when it comes to airline-related Coronavirus news, there’s another side of the coin: cheaper jet fuel.
CNBC reports that jet fuel prices are near a two-year low. Although prices have slightly rebounded over the last week, jet fuel is 17% cheaper than this time last year.
For airlines that do not fly to China or have limited operations there, the Coronavirus has proved to be good news, at least on a short-term basis. Obviously, this depends upon controlling the virus sooner rather than later.
Take Air France, for example. The carrier flies to China and expects to take a €150 – €200 million hit in revenue due to Coronavirus-related flight cancellations.
But on the flipside, Air France expects to save €300 million on its annual fuel bill due to lower prices.
Jet fuel is traded on a global market and carriers with limited service to China or East Asia will find significant savings in fuel expenditures. Ironically, one of the world’s most profitable airlines, Delta, may greatly benefit from these cheaper prices precisely because its footprint in Asia has been dramatically scaled back since the Northwest Orient days.
CONCLUSION
This news is not anything to celebrate. Coronavirus has sickened more than 77,000 people and killed more than 2,000. Beyond the human cost, there will be a ripple effect in supply chains and air cargo demand as commerce in China faces continued curtailment. But some airlines will benefit. In fact, some may even benefit handsomely.
There is usually a spike and a lull in the Chinese economy (at least manufacturing) surrounding the Lunar New Year. I expect this to be an extended lull in activity depending on how quickly the virus stops spreading…then a spike and potentially factories running full tilt for the remainder of the calendar year.
So your implication is that the drop in Chinese fuel usage due to the virus is so substantial that it’s seriously deflated the price of jet fuel worldwide?
Yes. See linked NBC article as well.
Oh, NBC says it! Good thing those alliances don’t work feeding pax on domestic routes… heard on ABC NY last night that airfares are down for spring break because of efficiencies, fuel, and more flights…hmmm, NBC or ABC? Brb, I’ll check fox and see what they say… They must’ve gotten it right, of course.
You know this virus is not going to financially benefit any airlines right ? Very expensive aircraft aren’t moving , pilots are getting paid and aren’t flying. Airlines that don’t fly to China will still have less people to move. Fuel prices are temporary and always changing. This was not one of the more clever articles.
Great comments. The article indeed did not take into account idle assets.
Too simple Ryan. Aircraft have and will be re-allocated.
Ryan is spot on. That is the bottom line. I think you’re just too dense and exploitive. Shame on you and so many other “journalists”.
Even if the aircraft idle, there will be cost savings in maintenance and airport fees. It’s not like 100% of aircraft costs are fixed.
We’re in the early stages now. If this turns into a pandemic it will be far worse for the airlines with demand down for a long time on international and domestic flights depending on how countries react and how much fear-mongering goes on. Still have to remember that flu hospitalizes and kills far more people but we don’t normally have quarantines for it in general.
I don’t see fear-mongering ( I DO see lots of horrible harassment of ethnic Chinese). The point is raised saying , in effect, that this is just another flu: IT IS NOT. Fatal outcomes are 20 times the level of seasonal flu. It is obvious that spread is relatively easy: look at the explosion of cases in South Korea and Italy, and on the Diamond Princess.
This virus has the potential to destroy the world economy. Delta would be bankrupt in a worst case pandemic, rather than a net beneficiary via cheaper fuel.
Obviously my analysis depends upon this virus not engulfing the world. No one would argue it would help airlines if it proliferates. But if it remains largely within China and is gradually taken under control, I do see it helping many airlines.
If your wrote this article weeks ago, it would still be a stretch, but would make for a debate. There is no control, and it IS spreading. You are an avgeek, not a scientist, not an economist. Did you just wake up for a months long nap? The US mainstream news is spending embarrassingly little time on this. Wait until they will have to wake up, and realize there is more than political reporting. The fear will then spread much faster and made worst because it will then be even more terrible mistrust in media and institutions.
@Paulo. If you read my post carefully, I did not say this is another flu, nor did I say fear-mongering is actually going on 🙂
I suppose if you have a business, just sell less and you’ll save on cost. Those newspaper companies like Miami Herald should be celebrating. They are saving on paper, ink, staff, distribution, fuel for less trucks deliveries.
I pity Apple. They sell so many iPhones, their costs of materials and distribution must be destroying their business!
I’ll send a memo to Exxon, BP etc, that they should keep fuel prices down when demand picks up again. This is brilliant, ingenious economics. Did you submit this theory to MIT yet? Your analysis depends on ignorance or a 5 year old.
Brutally moronic, and grossly click bait. I unsubscribed to this forum months ago over another dumb exploitive post. Now I find this in my Google feed. Now gotta figure out how to block live and let’s fly.
Lol. Bye bye!
” The carrier flies to China and ~~~~excepts~~~~ to take a €150 – €200 million hit in revenue due to Coronavirus-related flight cancellations. “
Well this aged wonderfully…
You call your shot, you can’t always be right.