Right now, though, it appears to be the least of their worries. The bunfight over Flybe’s bailout we discuss on page 14 highlights the stiff cost challenges the sector still faces, even if that has been somewhat masked by the tailwind airlines such as easyJet have received from the collapse of Thomas Cook last year. A new challenge could be looming, too, in the form of the recent outbreak of the coronavirus in China, the threat of which has already caused some broad market nervousness.
Chinese tourism is huge. Outbound Chinese tourism has been flugscham-free and a notable driver of continued global growth in air travel – the number of overseas trips taken annually by Chinese tourists has risen from a paltry 10.4m in 2000 to just shy of 150m today; at £277bn, their spending on non-domestic tourism is nearly twice the size of the next largest market, the US. But investors will be looking back with concern to 2003, when the outbreak of Sars in China caused havoc with Asian travel. Sars spread quickly from China and eventually killed more than 750 people, knocking an estimated 1-2 percentage points from the country’s GDP growth that year and prompting recession in Hong Kong as people stayed indoors to avoid the risk of infection. Having bet heavily on the success of the Olympics as part of its economic rebirth, Japan is particularly concerned – China and Hong Kong accounted for a third of the country’s 31m visitors in 2018.
Asian health authorities of course learned much in disease control from Sars. Yet the scale of the potential problem is now of a different quantum – when Sars struck, outbound Chinese tourism stood at a mere 17m trips a year, while Chinese are imminently set to make 3bn trips to celebrate the Lunar New Year. And there is another key difference – when Sars hit, markets were already on their knees after the grinding two-and-a-half year comedown from the dotcom boom. Now they are arguably priced for perfection, with only cheap money holding them up. Hopefully, the outbreak will be controlled, but it is a yet another risk for investors to weigh up – because a health panic in the engine of global economic growth could prove the market tipping point that many have long been expecting.
