IATA puts airline losses at $84.3 B

Published June 10, 2020, 12:00 AM

by manilabulletin_admin


Barring a second more damaging wave of the COVID-19 pandemic, airlines expect to lose $84.3 billion in 2020 – financially, the worst year in the history of aviation, according to the International Air Transport Association (IATA).

International Air Transport Association (IATA) Director General and CEO Alexandre de Juniac speaks during the Global Media Day in Geneva, Switzerland December 5, 2017. (Reuters)
International Air Transport Association (IATA) Director General and CEO Alexandre de Juniac.(Reuters file photo)

This year, airline revenues will fall 50% to $419 billion from $838 billion in 2019.

In 2021, the industry might cut its losses to $15.8 billion as revenues rise to $598 billion.

“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,” explained Alexandre de Juniac, IATA’s Director General and CEO.

“Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us, ” he hastened to add.

“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.”

This is 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,” de Juniac emphasized.
Passenger demand evaporated as international borders closed and countries locked down to prevent the spread of the virus.

This was the biggest driver of industry losses. At the low point in April, global air travel was roughly 95% below 2019 levels.

Now, IATA noted there are indications that traffic is slowly improving.

Nonetheless, traffic levels (in Revenue Passenger Kilometer) for 2020 are expected to fall by 54.7% compared to 2019.

Passenger numbers will roughly halve to 2.25 billion, approximately equal to 2006 levels.

Capacity, however, cannot be adjusted quickly enough with a 40.4% decline expected for the year.

Passenger revenues are expected to fall to $241 billon (down from $612 billion in 2019).
This is greater than the fall in demand, reflecting an expected 18% fall in passenger yields as airlines try to encourage people to fly again through price stimulation.

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

Costs are not falling as fast as demand. Total expenses of $517 billion are 34.9% below 2019 levels but revenues will see a 50% drop. Non-fuel unit costs will rise sharply by 14.1%, as fixed costs are spread
over fewer passengers.

Lower utilization of aircraft and seats as a result of restrictions will also add to rising costs.

Fuel prices offer some relief. In 2019 jet fuel averaged $77/barrel whereas the forecast average for 2020 is $36.8. Fuel is expected to account for 15% of overall costs (compared to 23.7% in 2019).

Cargo is the one bright spot. Compared to 2019, overall freight tonnes carried are expected to drop by 10.3 million tonnes to 51 million tonnes.

However, a severe shortage in cargo capacity due to the unavailability of belly cargo on (grounded) passenger aircraft is expected to push rates up by some 30% for the year.

Cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4 billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26%–up from 12% in 2019.

All regions will post losses in 2020. The crisis has taken on a similar dimension in all parts of the world with capacity cuts lagging about 10-15 percentage points or more behind the over-50% fall in demand.

Asia-Pacific was the first region to feel the brunt of the COVID-19 crisis. It is expected to post the largest absolute losses in 2020 bleeding $29 billion.

Passenger Demand (RPKs) in the region plummetted 53.8% while Passenger Capacity (ASKs) down 39.2%.

Airlines will still be financially fragile in 2021, IATA warned.

Passenger revenues will be more than one-third smaller than in 2019. And airlines are expected to lose
about $5 for every passenger carried.

The cut in losses will come from re-opened borders leading to increased volumes of travelers.

Strong cargo operations and comparatively low fuel prices will also give the industry a boost.

Competition among airlines will no doubt be even more intense. That will translate into strong
incentives for travelers 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,” according to de Juniac.