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IATA says airline losses could top US$84.3 billion for 2020 but also says worst...

IATA says airline losses could top US$84.3 billion for 2020 but also says worst is likely behind us

Tuesday, June 9, 2020

GENEVA — Not surprisingly IATA says 2020 will go down as “the worst year in the history of aviation” – but adds that the worst of the collapse is likely behind us.

IATA’s financial outlook for the global air transport industry shows that airlines are expected to lose US$84.3 billion in 2020 for a net profit margin of -20.1%.

Revenues will fall 50% to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.

However, provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is presumably behind us, says Alexandre de Juniac, IATA’s Director General and CEO.

“Financially, 2020 will go down as the worst year in the history of aviation. On average, every day of this year will add $230 million to industry losses. In total that’s a loss of $84.3 billion. It means that – based on an estimate of 2.2 billion passengers this year – airlines will lose $37.54 per passenger. That’s why government financial relief was and remains crucial as airlines burn through cash,” said de Juniac.

Re-start measures agreed through the International Civil Aviation Organization (ICAO) to keep passengers and crew safe, along with effective contact tracing, should give governments the confidence to open borders without quarantine measures, he says.

Airline travel is a key part of restarting the global economy post-COVID-19 as well. About 10% of the world’s GDP comes from tourism and much of that depends on air travel. “Getting people safely flying again will be a powerful economic boost,” said de Juniac.

At the low point in April, global air travel was roughly 95% below 2019 levels.

There are indications that traffic is slowly improving, says de Juniac, however global traffic levels for 2020 are expected to fall by 54.7% compared to 2019. Passenger numbers will halve to 2.25 billion, approximately equal to 2006 levels.

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Meanwhile passenger revenues are expected to fall to $241 billon (down from $612 billion in 2019), with the added downward drag of lower prices to stimulate demand.

Load factors are expected to average 62.7% for 2020, some 20 percentage points below the record high of 82.5% achieved in 2019.

For North American airlines, IATA is forecasting a 52.6% drop in passenger demand for 2020, with passenger capacity down 35.2%, and a net profit of -$23.1 billion.

 

REDUCED LOSSES IN 2021

IATA says it expects the airline industry to cut its losses to $15.8 billion for a net profit margin of -2.6% in 2021, thanks to open borders and rising demand next year. Here’s IATA’s outlook for 2021:

  • Total passenger numbers are expected to rebound to 3.38 billion (roughly 2014 levels when there were 3.33 billion travellers), which is well below the 4.54 billion travellers in 2019.
  • Overall revenues are expected to be $598 billion which would be a 42% improvement on 2020, but still 29% below 2019’s $838 billion.
  • Unit costs are expected to fall as fixed costs are spread across more passengers than in 2020. But the continued virus control measures will limit the gains by reducing aircraft utilization rates.
  • Jet fuel prices are expected to rise to an average of $51.8 per barrel for the year, as global economic activity and oil demand rises. IATA notes that while that will add some cost pressure on airlines, the price per barrel is similar to 2016 ($52.1) and will still be the lowest since 2004 ($49.7).

 

“Airlines will still be financially fragile in 2021. Passenger revenues will be more than one-third smaller than in 2019. And airlines are expected to lose about $5 for every passenger carried,” says de Juniac.

Competition among airlines will no doubt be even more intense, he adds. “That will translate into strong incentives for travellers to take to the skies again. The challenge for 2022 will be turning reduced losses of 2021 into the profits that airlines will need to pay off their debts from this terrible crisis.”

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Although losses will be significantly reduced in 2021 from 2020 levels, the industry’s recovery is expected to be long and challenging, as airlines deal with record-high debt levels, finding new operational efficiencies with the added time and cost involved with post-pandemic health and safety protocols, and the recession.

Pent-up demand is likely to drive an initial uptick in travel numbers but sustaining that is likely to require price stimulus and that will put pressure on profits, says de Juniac.

 

CONSUMER CONFIDENCE

There’s also the matter of consumer confidence. Travel patterns are likely to shift, notes de Juniac. Like many in the industry, IATA sees the restart beginning with domestic markets, followed by regional and, lastly, international.

IATA’s research shows that some 60% of travellers will be eager to restart travel within a few months of the pandemic coming under control.

“People will want to fly again, provided they have the confidence in their personal financial situation and the measures taken to keep travelers safe. There is no tried and true playbook for a recovery from COVID-19 but the ICAO Takeoff re-start plan outlines globally harmonized,” says de Juniac.

“It is important that industry and governments follow it so that travellers will have the maximum reassurance about their safety. That will be a good start.”

And depending on how the pandemic evolves, knowledge of the virus deepens, or science improves, industry and governments will be better prepared for a globally coordinated response, he notes. “That includes the potential removal of measures when it is safe. That will give airlines some breathing room to rebuild demand and repair damaged balance sheets.”

Tags: COVID-19, IATA
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