The International Air Transport Association (IATA) forecasts a net loss of $118.5 billion is expected for 2020 and $38.7 billion is expected in 2021. According to IATA, 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.
“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 $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,” said Alexandre de Juniac, IATA’s Director General and CEO.
In 2020, the COVID-19 crisis challenged the industry for its very survival in 2020. 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,” de Juniac added.
IATA says that all major operational parameters in the passenger business were negative as 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. Moreover, 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 per cent fall in passenger demand (measured in Revenue Passenger Kilometers/RPK). International markets were hit disproportionately hard with a 75 per cent fall in demand. Domestic markets, largely propelled by a recovery in China and Russia, are expected to perform better.
Challenges to Recovery
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:
Debt Levels and Financial Support: Airlines are surviving on financial life support from governments. Even after $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 $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 $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.
Closed Borders/Quarantine: The biggest factors impeding the industry’s recovery are travel restrictions and quarantine measure that effectively prevent a meaningful revival of travel. The most immediate and critical solution is the safe re-opening of borders using systematic COVID-19 testing. Longer-term, the widespread availability of COVID-19 vaccinations should enable borders to remain open without testing or restriction, but the timeline for vaccine availability is uncertain.
“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.
Confidence
“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.
