viewInternational Consolidated Airlines Group

British Airways suspends flights to and from China as coronavirus death toll rises

Other companies close outlets in China, including Apple, Disney, Ikea and McDonald's, while analysts warned that sectors could be hit overseas by the lack of outbound Chinese tourism

International Consolidated Airlines Group -

British Airways, owned by International Consolidated Airlines (LON:IAG), has joined other airlines in suspending all flights to and from mainland China as it assesses the threat of the coronavirus outbreak.

None of the usual direct flights from London to Beijing and Shanghai are currently available to book on the ba.com website this month or into February.

READ: Queensland Uni joins US biotechs in search for coronavirus vaccine

British Airways said in a statement on Wednesday that it has cancelled China flights until Friday, 31 January, while it assesses the situation around the virus.

“We apologise to customers for the inconvenience, but the safety of our customers and crew is always our priority,” BA said, adding that it had made the move following advice from the UK Foreign Office that British citizens should avoid all but essential travel to China to reduce the chances of infection.

The move followed suspensions of flights by United Airlines (NASDAQ;UAL) and Cathay Pacific Airways in recent days.

By Wednesday morning, the rampant spread of the virus since its origins in Wuhan had led to the death toll topping 130, from just over 80 on Monday.

Multinational companies react

Other industries were also reacting, with Starbucks closing half of its 4,300 outlets in China and nixing a planned upgrade to profit guidance because of the virus.

Ikea owner Ingka Group earlier said it will close around half its 30 stores in China until further notice, McDonald’s shut restaurants across five cities and Disney shuttered its Shanghai and Hong Kong theme parks.

Automotive components giant Bosch told Reuters the coronavirus could hit the global auto supply chain, but only “if this situation continues”, with “no disruption” yet being felt.

Analysts said there are likely to be negative effects for hotels and other tourist-focused companies such as retailers with exposure to Greater China as well in places like London, where spending from Chinese tourists is a key element.

For example, Chinese shoppers buy roughly a third of the world’s luxury goods, with almost three quarters of this spending occurring outside the People’s Republic.

Analysts at Credit Suisse said, from a European standpoint, Lufthansa and Air France-KLM were the most exposed to Asia Pacific, followed by IAG, with “no exposure” at Ryanair Holdings plc (LON:RYA), EasyJet PLC (LON:EZJ) and Wizz Air PLC (LON:WIZZ).

Those at HSBC noted that during the SARS epidemic in 2003, European airlines underperformed the wider market by 15% over the period.

READ: Outbreak of deadly coronavirus raises fears of SARS repeat

European share indices were in the green on Wednesday, however, with the FTSE 100 up 0.2% at 7,494.

Earlier, Hong Kong’s Hang Seng and the Shanghai Composite index both slumped almost 3% as traders returned from an extended Lunar New Year holiday.

“Investors [in Europe] may be showing some resilience at the moment, having rushed for the exits earlier this week, but I'm not convinced the earnings season distraction can be sustained,” said Craig Erlam, market analyst at Oanda.

“The knee jerk reaction on Monday was strong but with British Airways now cancelling trips to and from China, film premiers being cancelled, shops closing and internal travel plummeting, it seems entirely justified and probably not severe enough.”

However, healthcare analysts at Shore Capital said the response from the Chinese authorities has been “encouraging”, with lessons from SARS clearly learned.

“SARS had a material impact on global travel trends, notably in Asia, albeit they recovered quickly, with Asian airline passenger demand turning positive by the end of 2003.

“With numerous travel restrictions in place, a high media profile and the increasing economic importance of China and wider Asia on the global economy, the Wuhan virus has the potential for a greater near-term impact than SARS. The corollary is arguably the potential for the virus to be contained quicker, reducing overall impact.”

ShoreCap said for stocks in other sectors, such as Carnival (LON:CCL), TUI (LON:TUI), SSP (LON:SSP) and Hostelworld (LON:HSW), there was arguably “limited direct exposure to the region” and therefore any value wiped off shares to-date “appears way beyond any likely direct financial impact when compared with SARS; albeit before any secondary impact is considered”.

At broker Canaccord, analysts noted that an average decline of 13% in airline revenues has been seen in past outbreaks, though traffic “tends to recover relatively quickly after a pandemic outbreak.

Though it was still very early to say, the analysts said the coronavirus outbreak appeared to be spreading faster than those past viruses but has been less deadly so far.

Quick facts: International Consolidated Airlines Group

Price: 169.55 GBX

Market: LSE
Market Cap: £8.42 billion

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