The writer is a corporate finance expert with 10 years of experience in advisory services across Pakistan, the Middle East and Africa.

Covid-19: a costly negligence?

All of us will now have to pay the price as this global health crisis becomes a global economic crisis.

Raza Zaidi April 15, 2020
With an alarming growth rate over the last few days, the number of coronavirus cases in the United States has now surpassed both China and Italy with over 587,173 confirmed cases. Spain, the most severely affected European country, comes next with 172,541 confirmed cases. The resulting economic impact is expected to be far more severe than initially thought. Moreover, the worldwide outbreak in just over two and a half months raises serious questions about the response from the rest of the world. The airline industry, in particular, needs a special mention.

Why were all the flights to China not halted as a precautionary measure when the virus was first discovered? Why did foreign governments, especially with state-owned airlines, wait for WHO’s response? Why wasn’t there a complete travel ban on China? Why didn’t the airline industry take the initiative instead of waiting for the demand for flights to China drop?

The time lag between the Covid-19 news and the response from major international carriers was roughly one month. For example, Air Canada was among the early responders when it announced the suspension of selected flights to China on January 28. Other major international airlines, including Air France, Delta, United Airlines, Etihad, Emirates, and Turkish Airlines, followed the same mostly in the first week of February. It is pertinent to mention here that it was a partial suspension on selected Chinese routes, partly demand-based rather than a precautionary measure. All these actions were taken roughly a month after the first news of the outbreak in China. This one month was also the time when the coronavirus was conveniently allowed to travel globally. More importantly, airlines kept ignoring the severity of Covid-19 and the role of international travel in making it a global issue.

Although the cost of this slow reaction is difficult to estimate at this stage, it is likely to be massive. For the airline industry alone, the global revenue loss is projected to be in the range of $113 billion to $252 billion, according to the International Air Transport Association (IATA). Overall, even the best-case scenario from the Organisation for Economic Co-operation and Development’s (OECD) recent report predicts an economic loss of approximately $400 billion, assuming a dip of 0.5% in global economic growth. Similarly, the Asian Development Bank has predicted the range of scenarios from $77 billion to $347 billion resulting from the lost growth. The fall in all major stock exchanges also indicates the same level of fear and uncertainty. In addition, the cut in interest rates by the United States has raised concerns about a global recession. The most worrying facet of this crisis, however, is the world’s dependence on China and, consequently, the long-term global supply chain disruption. China accounted for more than 28% of global manufacturing output in 2018 as per estimates by the United Nations Statistics Division. The decline in China’s output was 17.2% in the first months of the ongoing year. The low to middle-income countries, in particular, have been the most affected as the crisis deepened. For example, PM Imran Khan, on numerous occasions had shown concern about the readiness of the country to deal with the potential outbreak and has asked the world community to consider the possibility of writing off the debt of developing countries like Pakistan.

Regardless of who was responsible, the sluggish response from the airlines appears to be one of the key factors in turning Covid-19 to a pandemic. All of us will now have to pay the price as this global health crisis becomes a global economic crisis.

Published in The Express Tribune, April 15th, 2020.

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