The International Air Transport Association (IATA) considers 2020 as the worst year in aviation history as losses are projected to balloon to as much US$84.3 billion due to the coronavirus pandemic.
IATA chief executive Alexandre de Juniac said that by comparison, airlines lost $31 billion with the Global Financial Crisis and oil price spike in 2008 and 2009. These losses are also expected to continue to 2021, forecasted at around $16 billion.
“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,” de Juniac said.
“Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us. A key to the recovery is universal implementation of the re-start measures agreed through the International Civil Aviation Organization (ICAO) to keep passengers and crew safe. And, with the help of effective contact tracing, these measures should give governments the confidence to open borders without quarantine measures. That’s an important part of the economic recovery because about 10% of the world’s GDP is from tourism and much of that depends on air travel. Getting people safely flying again will be a powerful economic boost,” he continued.
Loss in passenger demand and revenue are main drivers of losses
In April of this year, air travel demand was 95% below that of the previous year, brought by the countries locking down their borders to prevent the spread of covid-19. Revenue are also expected to fall to $241 billion, which is only a third of the $612 billion made in 2019.
Traffic levels in RPK are also expected to fall by 54.7% in 2020 compared to the previous year. Average load factor are also seen to drop to 62.7% in 2020 as compared to 82.5% in 2019.
Asia-Pacific carriers will post largest losses in 2020
Since the Asia-Pacific region was the first to feel the effects of the coronavirus outbreak, it is expected that carriers in the region will be the most affected. Revenue is expected to fall by $29 billion with demands dropping by 53.8%.
Most airlines had to suspend its passenger operations after countries were forced to close down their respective borders. This may result to net profits going down by $29 billion, the biggest among other regions. This is followed by the North America region with net profits going down by $23 billion.
Will take 2-3 years before air travel demand reaches pre-covid levels
The IATA sees 2021 as a challenging recovery period although losses will be reduced by that time. It is forecasted that air travel demand may reach pre-covid numbers in 2023, however, the recovery period may still see more challenges ahead which include the following factors:
- Debt Levels: Airlines entered 2020 in relatively good financial shape. After a decade of profits, debt levels were relatively low ($430 billion, roughly half annual revenues). Vital financial relief measures by governments have kept airlines from going bankrupt but have ballooned debt by $120 billion to $550 billion which is about 92% of expected revenues in 2021. Further relief measures should be focused on helping airlines to generate more working capital and stimulating demand rather than further expanding debt.
- Operational efficiencies: The global measures agreed for the industry re-start, for the period that they are implemented, will significantly change operational parameters. For example, physical distancing during embarkation/disembarking, more deep cleaning, and increased cabin check will all add time to operations which will decrease overall aircraft utilization.
- Recession: The depth and duration of the recession to come will significantly impact business and consumer confidence. 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.
- Confidence: Travel patterns are likely to shift. The gradual opening up of air travel is likely to be progressive, starting with domestic markets, followed by regional and, lastly, international. Research suggests that some 60% of travelers will be eager to recommence travel within a few months of the pandemic coming under control. The same research also indicates that an even greater percentage of potential travelers until their personal financial situation stabilizes (69%) or if quarantine measures are in place (over 80%).
De Juniac said, “People will want to fly again, provided they have 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 measures agreed by health and industry experts. It is important that the industry and governments follow it so that travelers 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. 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.”
