The International Air Transport Association (IATA) is the trade association for the world’s airlines, representing 290 airlines which carry 82% of total air traffic. They’ve just released their latest industry forecast and despite some good news about returning flight schedules, the picture is still grim. They expect airlines will lose a record $84 billion this year. And that’s if there’s no second wave of COVID-19.
We’ve summarized their report so our community can better understand the challenges their favourite airlines are facing.
- Their latest industry financial forecast revised their 2020 estimate and their updated 2021 outlook now incorporates the effect of the COVID-19 shock and the expected phased recovery of travel markets. These forecasts assume that the pandemic will gradually be contained and there will not be a second wave of COVID cases.
- The global airline industry will face a whopping $84 billion loss this year, which is 3.2 times higher than in the Global Financial Crisis. That said, they expect travel demand to gradually recover from the low point in April with the step-by- step opening of markets. However, the extremely deep recession and loss of traveler confidence will have an impact on travel demand for the rest of the year. In 2020, RPKs (Revenue per kilometres) are expected to decline by 54.7%, resulting in a 50% loss of industry-wide revenue, despite a more promising cargo revenue performance.
- Against the collapse in demand, airlines have faced challenges in reducing operating costs due to the relatively high share of fixed and semi-fixed costs. Airline costs are expected to decline at a slower pace (-35%) than the loss in revenues. As markets open following the lock-down period in the second quarter of 2020, airlines are also likely to incur higher operating costs due to new health and regulatory requirements. At the same time, they expect airfares to be low initially to help stimulate demand which will further put pressure on airline finances and profitability.
- Looking to 2021, a return to profitability will be difficult for the industry. Although economic activity is expected to improve sharply in 2021, returning to pre-crisis levels of air transport activity looks unlikely (RPKs will still be 30% lower than 2019 levels). The IATA believe cautious behavior of travelers will continue to affect travel demand at the start of 2021 and the recovery in business travel will come with a lag as well. As in the Global Financial Crisis, industry-wide losses are expected to extend into a consecutive year. However, the losses in 2021 will moderate to $16 billion with the rise of revenues and the EBIT margin will improve from -23.4% to -4.2%.