Airlines industry losses will continue into 2021: IATA

Airline industry losses will continue into 2021: IATA

GENEVA — IATA’s revised outlook for airline industry performance in 2020 and 2021 shows that deep industry losses will continue into 2021, even though performance is expected to improve.

The news comes on the heels of a departure date for outgoing IATA Director General and CEO, Alexandre de Juniac, who will step down from his role effective March 31, 2021. De Juniac joined IATA in September 2016 from Air France-KLM where he was Chairman and CEO.

Taking over from de Juniac will be Willie Walsh, former CEO of International Airlines Group (IAG), parent company of British Airways, Iberia, Aer Lingus and more. Walsh will become IATA’s eighth Director General effective April 1, 2021.

The leadership update becomes official today at IATA’s AGM.

IATA is projecting a net loss of $118.5 billion for 2020, deeper than the $84.3 billion forecast in June.

A net loss of $38.7 billion is expected in 2021, deeper than the $15.8 billion forecast in June.

Performance factors in 2021 will show improvements on 2020; and the second half of 2021 is expected to see improvements after a difficult 2021 first half, according to IATA’s stats.

Aggressive cost-cutting is expected to combine with increased demand during 2021, due to the re-opening of borders with testing and/or the widespread availability of a vaccine, to see the industry turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast.

“This crisis is devastating and unrelenting,” said IATA’s de Juniac.  “Airlines have cut costs by 45.8%, but revenues are down 60.9%. The result is that airlines will lose $66 for every passenger carried this year for a total net loss of $118.5 billion. This loss will be reduced sharply by $80 billion in 2021. But the prospect of losing $38.7 billion next year is nothing to celebrate. We need to get borders safely re-opened without quarantine so that people will fly again. And with airlines expected to bleed cash at least until the fourth quarter of 2021 there is no time to lose.”

The COVID-19 crisis challenged the industry for its very survival in 2020, he added. In the face of a half trillion-dollar revenue drop (from $838 billion in 2019 to $328 billion) airlines cut costs by $365 billion (from $795 billion in 2019 to $430 billion in 2020).

“The history books will record 2020 as the industry’s worst financial year, bar none. Airlines cut expenses by an average of a billion dollars a day over 2020 and will still rack-up unprecedented losses. Were it not for the $173 billion in financial support by governments we would have seen bankruptcies on a massive scale,” said de Juniac.

2020

Passenger numbers are expected to decrease to 1.8 billion (60.5% down on the 4.5 billion passengers in 2019). This is roughly the same number that the industry carried in 2003.

Passenger revenues are expected to fall to $191 billion, less than a third of the $612 billion earned in 2019. This largely driven by a 66% fall in passenger demand. International markets were hit disproportionately hard with a 75% fall in demand. Domestic markets, largely propelled by a recovery in China and Russia, are expected to perform better and end 2020 49% below 2019 levels.

Further weakness is demonstrated by passenger yields which are expected to be down 8% compared to 2019 and a weak passenger load factor which is expected to be 65.5%, down from the 82.5% recorded in 2019, a level last seen in 1993.

2021

Airline financial performance is expected to see a significant turn for the better in 2021, even if historically deep losses prevail, according to IATA’s projections. The expected $38.7 billion loss in 2021 will be second only to 2020 performance.

On the assumption that there is some opening of borders by mid-2021 (either through testing or growing availability of a vaccine), overall revenues are expected to grow to $459 billion ($131 billion improvement on 2020, but still 45% below the $838 billion achieved in 2019). In comparison, costs are only expected to rise by $61 billion, delivering overall improved financial performance. Airlines will still lose, however, $13.78 for each passenger carried. By the end of 2021 stronger revenues will improve the situation, but the first half of next year still looks extremely challenging.

Passenger numbers are expected to grow to 2.8 billion in 2021. That would be a billion more travelers than in 2020, but still 1.7 billion travelers short of 2019 performance. Passenger yields are expected to be flat and the load factor is expected to improve to 72.7% (an improvement on the 65.5% expected for 2020, but still well below the 82.5% achieved in 2019).

QUARANTINES & CONFIDENCE

IATA notes that the biggest factors impeding the industry’s recovery are travel restrictions and quarantine measure that effectively prevent a meaningful revival of travel. “We have the ability to safely re-open travel with systematic testing,” says de Juniac. “We cannot wait on the promise of a vaccine. We are preparing for efficient vaccine distribution. But testing is the immediate solution to meaningfully re-open air travel. With 46 million jobs at risk in the travel and tourism sector alone because of plummeting air travel, we must act fast with solutions that are at hand. We have fast, accurate and scalable testing that can safely do the job. The airlines are ready. The livelihoods of millions are in the hands of governments and public health authorities. Governments understood the criticality of a viable air transport sector when they invested billions to keep it afloat. Now they need to protect those investments by giving airlines the means to safely do business.”

Consumer confidence is also an issue, but the pent-up demand is real, says de Juniac.

“The numbers couldn’t get much worse. But there is a way forward. With the continued financial support of governments to keep airlines financially viable and the use of testing to enable travel without quarantine, we have a plan to overcome the worst immediately. And longer-term the progress on vaccines is encouraging. Most importantly, people have not lost their desire to travel. The market response to even small measures to lift quarantine is immediate and strong. Where barriers have been removed, travel rebounded. The thirst for the freedom to fly has not been overcome by the crisis. There is every reason for optimism when governments use testing to open borders. And we need to make that happen fast,” said de Juniac.

Yesterday IATA announced that its IATA Travel Pass, a digital health pass that will support the safe reopening of borders, is now in the final development phase. The first cross-border IATA Travel Pass pilot is scheduled for later this year and the launch slated for Q1 2021.