VIVEK PRAKASH/AFP via Getty Images)
Travellers wearing face masks as a precautionary measure to protect against the possible spread of a SARS-like virus outbreak walk in the arrivals area at Hong Kong International Airport ahead of the Chinese New Year in Hong Kong on January 23, 2020. - Hong Kong has turned two holiday camps, including a former military barracks, into quarantine zones for people who may have come into contact with carriers of the Wuhan virus, officials announced on January 23. The international financial hub has been on high alert for the virus, which has killed 17 people since the outbreak started in central China.
- American airline carriers are bracing for impact from the virus sweeping China.
- Most flights in Wuhan, China, the epicenter of the coronavirus, were cancelled Thursday as officials scramble to stop the spread of the disease.
- JPMorgan warned this week that any flight cancellations caused by the outbreak could be a near-term risk for airline equities.
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The outbreak of a SARS-like virus in China, coinciding with the Lunar New Year travel season, is likely to wreak havoc on US airlines amid earnings season.
Tens of millions of people are affected by measures that Chinese officials are executing in order to contain the spread of the coronavirus, which has affected an estimated 630 people - 17 of whom have died, The Washington Post reported. And in Wuhan, the outbreak's epicenter, more than 200 flights were cancelled on Thursday, according to data from FlightRadar24.
While most of the flights in Wuhan are domestic, international travelers rethinking trips to China could be a drag on US airline revenue, JPMorgan analysts warned this week.
"The Chinese coronavirus may represent a near-term and potentially material overhang as we head into the brunt of earnings season, as we are already facing a deluge of inquiries related to pandemic precedent," Jamie Baker, the bank's airlines analyst said in a note to clients Tuesday. He's looking to the 2014 Ebola crisis as a comparison, and says the United, American, and Delta are most at risk.
If things turn out to bear more resemblance to the 2002 SARS outbreak, Baker says, that's when things could get bad. At the height of that outbreak in April 2003, passenger demand in Asia plunged 45%, according to the International Air Transport Association (IATA), Reuters reported.
"Recall that SARS proved devastating to Trans-pacific demand trends for U.S. airlines," he wrote. "At its peak, myriad U.S. corporations banned not only corporate travel to Asia, but actually forbid leisure travel by employees to/through affected areas."
The prediction of a near-term risk has already payed out for some airlines, many of which reported fourth quarter earnings this week and hosted conference calls with analysts.
United Airlines president J. Scott Kirby told analysts the airline is "coordinating closely" with US public health officials to keep passengers and employees safe.
"We have in the past effectively managed situations like this one to keep our people safe," he said. "And in doing so, we've seen demand bounce back. Managing through uncertainty is something that every airline in the world has to do and here at United our formula isn't complicated."
Despite otherwise strong financials from the airline, United's stock fell in trading Wednesday, surprising many on the street. Joseph DeNardi, an analyst at Stifel, attributed the weakness in part to the virus outbreak, and a softer earnings guide for the full year.
On Thursday, the US State Department urged Americans to "exercise increased caution" if traveling to China. That warning coincided with a notice to "avoid nonessential travel" in the country by the Centers for Disease Control and Prevention.
Doctors estimate that the coronavirus could be 10 times bigger than SARS 17 years ago, fueled in part by the Lunar New Year, in which millions of Chinese people travel to the region. The 40-day rush is considered the largest human migration event in the world.
"I've seen it all: bird flu, SARS, influenza A, swine fever and the rest," Gyan Yi, a virologist who helped identify the illness at the time, told China's Caixin. "But the Wuhan pneumonia makes me feel extremely powerless," he told Caixin. "Most of the past epidemics were controllable, but this time, I'm petrified."