TAIPEI - Global airlines could face an even bumpier landing than during the 2003 SARS crisis if a new swine flu outbreak becomes a pandemic, hitting an industry that is already reeling from the global economic downturn.
Airline stocks in Asia continued a sell-off on Tuesday on concerns about the outbreak that began in Mexico, with Cathay Pacific falling 1.7 percent in Hong Kong after dropping 8 percent the previous day.
In Taiwan, China Airlines and Eva Airways fell 4 percent and 7 percent, respectively, after dropping 7 percent in the previous session in one of the markets hardest hit by the SARS outbreak six years ago.
"Airlines are already in a weakened position with the global crisis sapping demand for corporate travel," said Stone Lin, an airline analyst at Yuanta Securities in Taiwan.
"The summer months of July-September are typically the peak season for most airlines, with most bookings beginning right now. With sentiment so weak, and worsened by the swine flu issue, it's unlikely anyone is going to go rushing to book holidays or corporate travel, which means the second half of this year won't be pretty for most airlines," he said.
The outbreak of severe acute respiratory syndrome (SARS) in 2003, centred in Asia, provides a chilling example of what could happen if swine flu follows a similar course.
During the SARS outbreak, which began in China and quickly spread to Hong Kong, Taiwan and Singapore, global airline traffic halved. Airline stocks responded in kind, with carriers such as Cathay, Japan Airlines and Korean Airlines tumbling 25 percent or more.
DISRUPTION POTENTIAL
Ratings agency Standard & Poor's also warned of potential disruption to the airline industry depending on how the current outbreak unfolds.
"Though swine flu has not yet caused health problems on a similar scale, we believe airlines are at risk of suffering reduced traffic because of government-imposed quarantines and travelers' fears," S&P credit analyst Philip Baggaley said in a note.
A spokeswoman for Cathay Pacific declined to comment on how the crisis might impact earnings, but said the airline was reminding colleagues to monitor the situation.
Most analysts said it was still too early to say how big the risk could be to airlines.
"The overall situation is weaker now ... because there are two headwinds the airline industry is facing: one is the global recession and now this outbreak of swine flu," said Daphne Roth, analyst at ABN Amro private bank.
But she added the current situation is also different from SARS as information about the illness was coming out in a much more timely and transparent manner.
A swine flu crisis could have less impact on Asian airlines than SARS since it originated and is currently concentrated in North America, said Viwat Techapoonphol, strategist at Tisco Securities.
"The SARS outbreak was here in Asia and badly hit the tourism industry at that time because governments worldwide issued warnings to avoid coming to Asia. This time round, swine flu is far away in Mexico and, relatively, the impact to Asia should be smaller than with SARS," he said.
(If you have a query or comment on this story, send an email to news.feedback.asiazthomsonreuters.com)
