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April 14, 2024
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The outbreak of the COVID-19 Coronavirus that began in Wuhan, China, has been largely contained within China due to actions to quarantine the area to reduce exposure to spreading the disease via human to human contact. Nonetheless, travelers did leave the Wuhan area for many destinations within China and internationally, and COVID-19 virus has expanded to other cities within Hubei province. Fortunately, international cases remain light. The latest count, as of today, shows 75,291 cases and 2,010 deaths, of which 1,106 were outside of China with 6 fatalities.

To date, Coronavirus infections are running at a much higher rate than the SARS or MRSA pandemics of 2003 and 2012, but with much lower fatality rates to date. Nonetheless, the higher infection rate, noted at being an order of magnitude more infectious than the rate for SARS has resulted in higher total fatality counts.  The following table compares SARS, MERS, and Covid-19 through February 19th: 

source: WHO

Since a viral outbreak tends to last about nine months from initial detection to a resumption of normal activities, we are still quite some time from an expected finish to this contagion, which may mutate during the process. The following chart shows the first 96 days of the SARS and Covid-19 outbreak to date, illustrating the marked difference between the growth rates. The new virus appears to be nearly 20 times as infectious as SARS, mandating the need for the more substantial response we’ve seen from Chinese authorities. While the death rate remains lower than in prior outbreaks, only about 1/3rd of the total patients have fully recovered now, so the fatality rate could still, potentially, increase.

Source: South China Morning Post

Unlike the prior breakout of SARS, the government in China has quarantined a large number of people in the last week, building on the initial quarantine of the city of Wuhan. Wuhan, with a population of 11 million, is larger than New York or London. Since then, additional areas in the province of Hubei have resulted in nearly 61 million people now being under quarantine. To place this into perspective, the number currently under quarantine is larger than the populations of several entire countries, as shown in the following table:

Source: Wikipedia, South China Morning Post

Imagine the entire population of France or the UK being quarantined. The sheer size of the effort to contain this outbreak, and the challenges of being successful in that regard suddenly become clearer, as the population impacted is substantially larger than any prior quarantine in history.


The impact on the airline and aviation industry has also been substantial, with domestic airlines canceling a high percentage of flights while many international carriers have curtailed flights to China as their countries have banned travel.

The following graphic from Flight Radar24 shows airline traffic on January 19th, prior to the outbreak in Wuhan on the left. The chart to the right shows airline traffic today at the same time, 9 am local time. The reduction is clearly visible to even the most casual observer.

source: Flight Radar 24

Airport by airport, traffic in China has fallen substantially over the last few weeks, as shown in the following chart:source: Flight Radar24

Our airport graphic is interactive, enabling our readers to select data for each airport individually by checking the box on the chart or unchecking them all to see the total for all of these Chinese airports.  The most heavily impacted airport is Wuhan, with Shanghai less impacted than others due to international traffic.

The number of domestic flights is off by 79.8% since January 21st, falling from 10,522 flights that day to only 2,123 flights on February 11th. This is, of course, disastrous for Chinese airlines that depend on domestic traffic to stay afloat. The outbreak also occurred during the Lunar New Year holiday, the busiest travel period during the year in which carriers enjoy their highest revenues and yields.  This will likely increase pressure on already stressed airlines such as Hainan and may require government bailouts if financial conditions continue to weaken.

The impact of the quarantine in Hubei will likely continue for some time, with flight reductions here to stay for the next 2 to a worst-case scenario of 6 months.  That will result in complications for smaller carriers that cannot rely on international routes to keep revenues flowing. We expect several smaller Chinese carriers to be consolidated and acquired by larger airline groups before the crisis ends. Carriers like Hainan, Sichuan, Xiamen, China Southern, and China Eastern will be impacted, although the last three have the critical mass and do not appears as vulnerable as smaller operators.  Some smaller international operators in Indo-China may also face difficulties, as they rely on the Chinese market for income.


The downstream impacts of the Covid-19 virus will be felt throughout the aviation industry, and well beyond China. Global traffic may not grow this year, as China is now the second-largest aviation marketplace and Covid-19 will have a substantially larger impact than the SARS crisis in 2003 simply due to the larger traffic base. The following chart shows Chinese air travel demand from 1975, illustrating today’s traffic is now six times higher than in 2003.

The Chinese airline segment is now second only to the US in terms of traffic and will likely overtake the US by 2035. During the SARS crisis, the impact on traffic in China and Hong Kong was significantly more limited than what we are seeing today.

This will, of course, impact the short-term demand for aircraft and likely result in deliveries being pushed back. In the narrow-body segment, this will likely impact A320 family deliveries from Airbus Tianjin facility to Chinese carriers and may extend the impacts of the Boeing 737 MAX grounding if Chinese carriers defer deliveries of aircraft already completed and on order.

While we do not expect major changes in monthly lease rates in the near term, this is a supply and demand business, and extended airspace closures should the virus be more difficult to contain could have longer-term impacts. We need to wait and see how well the quarantines are working by checking daily infection totals.

In the near term, the virus is reducing demand for petroleum products, including reduced demand for jet fuel. Combined with the downturn in Chinese auto sales and lower demand for gasoline as customers are quarantined, this could result in a reduction in fuel prices worldwide. The implications of lower fuel prices on the economy are well known, from economic stimulation to difficulties for high- cost oil producers and are likely to be seen beginning in March. The supply chain worldwide that depends on trade with China will soon feel the impact of a lack of spare parts. In the auto industry, facilities from Flint, Michigan to Belgrade, Serbia to Seoul, South Korea are experiencing parts shortages that will likely shut facilities. For readers who take medications, 70% of pharmaceuticals are manufactured in China, and the global supply chain may be impacted by shortages over the next few months, so refill early.

In aviation, certain specialized composites for the Boeing 787 are Chinese sourced, and for Airbus, the A320 has several Tianjin produced components. The recent factory closures in China could result in shortages if production in the recently re-opened facilities cannot ramp-up to their former rates with fewer available employees.

Procurement executives are investigating secondary sources and alternatives as it appears that the ramp-up of Chinese production may remain slow despite the ten-day extension to the Lunar New Year holiday to combat further human to human transmission of Covid-19. We see the potential economic impact of this virus potentially as between 2-3% of Chinese annual GDP before the outbreak is finally contained.

The Bottom Line:

While this virus does not appear to be as deadly as its predecessors, it appears to spread much more easily. As a result, the impact will likely be greater than SARS in terms of air travel demand, airline losses, future airline consolidation, and impacts on the global supply chain from quarantines and the inability to rapidly ramp-production of components to prior production levels. While automotive producers are already shutting facilities, it seems less likely that Boeing or Airbus will shut facilities outside of China, although they may be impacted by short-term parts shortages.

The Covid-19 crisis will impact our industry in many ways, and the path of the outbreak and potential spread remains unknown. The flight bans, quarantines, and measures in place today should limit the spread, but we expect international travel to and from China to be severely impacted for another six months. Chinese airlines will face bankruptcy or state bailouts, and the impact on the global economy will be significant. For now, contingency planning and a wait and see attitude is the word of the day, particularly for those with supply chains in China, that can range from raw materials to sub-tier suppliers all the way to offshore finished parts. The brunt of the impact is yet to come.

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President AirInsight Group LLC

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