IATA expects improvement of the airline industry in 2021 but not sufficient to recover from pandemic
The International Air Transport Association (IATA) announced a revised outlook for airline industry performance in 2020 and 2021. Deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast.
Performance factors in 2021 will show improvements on 2020; and the second half of 2021 is expected to see improvements after a difficult first half. 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. Airlines have cut costs by 45.8%, but revenues are down 60.9%. The result is that airlines will lose USD 66 for every passenger carried this year for a total net loss of USD 118.5 billion. This loss will be reduced sharply by USD 80 billion in 2021. But the prospect of losing USD 38.7 billion next year is nothing to celebrate.
Passenger volumes thrown back nearly 20 years to 2003 levels
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,” said Alexandre de Juniac, Director General and CEO, IATA.
The COVID-19 crisis challenged the industry for its very survival in 2020. In the face of a half trillion-dollar revenue drop (from USD 838 billion in 2019 to USD 328 billion) airlines cut costs by USD 365 billion (from USD 795 billion in 2019 to USD 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 USD 173 billion in financial support by governments we would have seen bankruptcies on a massive scale,” said de Juniac.
Passenger numbers are expected to plummet 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.
IATA reports its unlikely that 2019 volumes will return in 2021
Passenger revenues are expected to fall to USD 191 billion, less than a third of the USD 612 billion earned in 2019. This largely driven by a 66% fall in passenger demand (measured in Revenue Passenger Kilometers/RPK). 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.
Airline financial performance is expected to see a significant turn for the better in 2021, even if historically deep losses prevail. The expected USD 38.7 billion loss in 2021 will be second only to 2020 performance.
First half 2021 will remain extremely challenging for Airline industry
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 USD 459 billion (USD 131 billion improvement on 2020, but still 45% below the USD 838 billion achieved in 2019). In comparison, costs are only expected to rise by USD 61 billion, delivering overall improved financial performance. Airlines will still lose, however, USD 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 travellers 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).
While the industry will see improved performance in 2021 compared to 2020, the road to recovery is expected to be long and difficult. Passenger volumes are not expected to return to 2019 levels until 2024 at the earliest, with domestic markets recovering faster than international services.
Several critical challenges need urgent attention
Airlines are surviving on financial life support from governments. Even after USD 173 billion of government support of various kinds in 2020, the median airline has just 8.5 months of cash to survive. Many have far less as the industry enters into the critical winter period, which is characterized by weak demand even in normal times. While cash burn has diminished from the peak of the crisis, airlines are still expected to burn an average of USD 6.8 billion/month during the first half of 2021, before the industry turns cash positive in the fourth quarter of 2021.
“The financial damage of this crisis is severe. Government support has kept airlines alive to this point. More is likely needed as the crisis is lasting longer than anyone could have anticipated. And it must come in forms that that do not increase the already high debt load which has ballooned to USD 651 billion. Bridging airlines to the recovery is one of the most important investments that governments can make. It will save jobs and kick-start the recovery in the travel and tourism sector which accounts for 10% of global GDP,” said de Juniac.
People have not their desire to travel so lift quarantine measures
“We have the ability to safely re-open travel with systematic testing. 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,” said 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.