(22 Apr 2021)
IATA has forecast net airline industry losses of $47.7
billion in 2021 (net profit margin of -10.4%), an
improvement on the estimated net industry loss of $126.4 billion
in 2020 (net profit margin of -33.9%).

“This crisis is
longer and deeper than anyone could have expected,” said Willie
Walsh, IATA’s Director General. “Losses will be
reduced from 2020, but the pain of the crisis increases. There is
optimism in domestic markets where aviation’s hallmark resilience
is demonstrated by rebounds in markets without internal travel
restrictions. Government imposed travel restrictions, however,
continue to dampen the strong underlying demand for international
travel. Despite an estimated 2.4 billion people travelling by air
in 2021, airlines will burn through a further $81 billion of
cash.”

The outlook points to the start of
industry recovery in the latter part of 2021. In the face of the
ongoing crisis, IATA calls for:

Plans for a restart in
preparation for a recovery
: IATA continues to urge governments to
have plans in place so that no time is lost in restarting the
sector when the epidemiological situation allows for a re-opening
of borders.

Out of Service Self-Service Kiosks at Suvarnabumi Airport (BKK) near Bangkok, Thailand. Picture by Steven Howard of TravelNewsAsia.com Click to enlarge.

“Most governments have not yet provided clear
indications of the benchmarks that they will use to safely give
people back their travel freedom, In the meantime, a significant
portion of the $3.5 trillion in GDP and 88 million jobs supported
by aviation are at risk. Effectively restarting aviation will
energize the travel and tourism sectors and the wider economy.
With the virus becoming endemic, learning to safely live, work and
travel with it is critical. That means governments must turn their
focus to risk management to protect livelihoods as well as lives,”
said Walsh.

Employment Support: Industry losses of this
scale imply a cash burn of $81 billion in 2021 on top of $149
billion in 2020. Government financial relief measures and capital
markets have been filling this hole in airline balance sheets,
preventing widespread bankruptcies. The industry will recover but
more government relief measures, particularly in the form of
employment support programmes, will be needed this year.

“Owing to government relief measures, cost-cutting, and success in
accessing capital markets, some airlines appear able to ride out
the storm. Others are less well-cushioned and may need to raise
more cash from banks or capital markets. This will add to the
industry’s debt burden, which has ballooned by $220 billion to
$651 billion. There is a definite role for governments in
providing relief measures that ensure critical employees and
skills are retained to successfully restart and rebuild the
industry,” said Walsh.

Cost containment/reduction: The
whole industry will come out of the crisis financially weakened.
Cost containment and reductions, wherever possible, will be key to
restoring financial health.

“Containing and reducing costs
will be top of mind for airlines. Governments and partners must
have the same mentality. And that must be reflected in items big
and small. There can be no tolerance for monopoly infrastructure
suppliers gouging their customers to recoup losses through higher
charges. Equally, we demand an end to the extortionate costs for
COVID-19 testing with governments taking their cut on top of that
with taxes. Everyone must be aligned in understanding that
increased travel costs will mean a slower economic recovery. Cost
reduction efforts on all sides are needed,” said Walsh.

Industry Outlook Highlights:

Demand: Travel restrictions,
including quarantines, have killed demand. IATA estimates that
travel (measured in revenue passenger kilometres or RPKs) will
recover to 43% of 2019 levels over the year. While that is a 26%
improvement on 2020, it is far from a recovery. Domestic markets
will improve faster than international travel. Overall passenger
numbers are expected to reach 2.4 billion in 2021. That is an
improvement on the nearly 1.8 billion who travelled in 2020, but
well below the 2019 peak of 4.5 billion.

International
passenger traffic remained 86.6% down on pre-crisis levels over
the first two months of 2021. Vaccination progress in developed
countries, particularly the US and Europe, is expected to combine
with widespread testing capacity to enable a return to some
international travel at scale in the second half of the year,
reaching 34% of 2019 demand levels. 2021 and 2020 have opposite
demand patterns: 2020 started strong and ended weak, while 2021 is starting weak and is expected to strengthen towards year-end. The
result will be zero international growth when comparing the two
years.

Domestic passenger traffic is expected to perform
significantly better than international markets. This is driven by
strong GDP growth (5.2%), accumulated consumer disposable cash
during lockdowns, pent-up demand, and the absence of domestic
travel restrictions. IATA estimates that domestic markets could
recover to 96% of pre-crisis (2019) levels in the second half of
2021. That would be a 48% improvement on 2020 performance.

Cargo: Cargo has outperformed the passenger business throughout
the crisis. That trend is expected to continue throughout 2021.
Demand for cargo is expected to grow by 13.1% over 2020. This puts
the cargo business in positive territory compared to pre-crisis
levels (2020 saw a full-year decline of 9.1% compared to 2019).
Total cargo volumes are expected to reach 63.1 million tonnes in
2021. That’s nearly at the pre-crisis peak of 63.5 million tonnes
which occurred in 2018.

Revenues: Industry revenues are
expected to total $458 billion. That’s just 55% of the $838
billion generated in 2019 but represents 23% growth on the $372
billion generated in 2020.

Passenger revenues are
expected to total $231 billion, up from $189 billion in 2020, but
far below the $607 billion generated in 2019.

Cargo
revenues are expected to reach $152 billion, an historic high.
This is up from $128 billion in 2020 and $101 billion in 2019.
Capacity remains constrained owing to the large-scale grounding of
the passenger fleet. This removed significant belly capacity,
driving up yields 40% in 2020, with a further 5% growth expected
in 2021. In 2021 cargo will account for a third of industry
revenues. This is significantly above cargo’s historic
contribution, which ranged around 10-15% of total revenues. The
improvement in cargo, however, is not able to offset the dramatic
decline in passenger revenues.

Costs: Airlines have not
been able to cut costs as fast as revenues have fallen. Recently
we have seen worrying cost trends in fuel and infrastructure:

Fuel: The cost of jet kerosene fell to $46.6/barrel in 2020.
But, with the pick-up in economic activity fuel costs are on the
rise. Jet kerosene is expected to rise to an average of
$68.9/barrel in 2021, nearing the 2019 average price of
$77/barrel.

Non-Fuel: Non-fuel unit costs rose by 17.5%
in 2020 as fixed costs were spread over dramatically reduced
capacity. As capacity grows in 2021and airline cost-cutting
efforts mature, this will partially reverse itself with a 15%
decline. “We have seen some worrying signs from our airport and
air navigation service providers. Heathrow, for example, is
attempting to recoup pandemic losses by expanding its regulated
cost base. We are in this crisis together with our partners.
Recouping losses from one another is not the answer. We all need
to tighten our belts. And the regulators need to act and stamp out
monopolistic behaviours,” said Walsh.

Capacity: Capacity is
likely to return at a slower pace than demand. That reflects the
pressure on airlines from debt and fuel prices to operate only cashflow-positive services. Taking cargo and passenger traffic
into account, the overall weighted load factor is forecast to rise
a little to 60.3% in 2021. This is considerably below the 66% we
estimate to be breakeven for profitability in 2021 – even though
cash costs of operations are being covered.

Regional
Highlights

Significant differentiation is emerging between
regions with large domestic markets and those relying primarily on international traffic. Losses are highest in Europe (-$22.2
billion) with only 11% of its passenger traffic (RPK) being domestic. Proportionately, losses are much smaller in North
America (-$5.0 billion) and Asia-Pacific (-$10.5 billion) where
domestic markets are larger (66% and 45% respectively,
pre-crisis).

North American carriers are
best placed to take advantage of the rapid vaccination boost to
domestic travel in the US, as well as the strong economy driving
air cargo demand. Losses are reduced to the lowest in any region
at -2.7% of total revenues. In 2020 net losses were -26.8% of
total revenues.

European carriers are highly dependent
on international passenger revenues, with domestic markets
representing only 11% of RPKs. Along with testing, vaccines will
play an important role in reopening international travel. Uneven
vaccination rollout was already expected to limit the number of
international markets opening this year. Slower vaccination in
Europe will also restrict the recovery of the important
within-Europe market and the North Atlantic. Net losses are
expected to be reduced at the slowest rate among the major
regions. The region’s carriers are expected to see net losses fall
to -23.9% of revenues for 2021 (from -43% in 2020).

Asia-Pacific carriers see 45% of their RPKs generated on domestic
markets and will benefit from the strength of the Chinese domestic
market recovery, as well as the relative importance of air cargo
to the region. Net losses are expected to be reduced from -31.1%
of revenues in 2020 to -8.8% of revenues this year.

Middle Eastern carriers will benefit from relatively rapid
vaccination rates on home markets. They will be hampered, however,
by continued travel restrictions on many of the routes to emerging
economies that are served through Gulf hub connections. Net losses
in 2021 are forecast at -13.8% of revenues (reduced from -28.9% of
revenues in 2020). It will be the third smallest regional loss.

Latin American carriers are advantaged by having almost half
(48%) of their RPKs being generated on domestic markets, in
particular the large Brazilian home market. They are starting from
relatively large losses in 2020 and, in some parts of the region,
a slow rate of vaccination. Revenues from the growth in domestic
travel are forecast to cut net losses by more than two-thirds this
year—to -20.4% of revenues in 2021 from -80.1% in 2020.

African carriers will see slow vaccination rates limit
international travel. With only 14% of the region’s RPKs generated
on domestic markets this will provide little cushion. Relatively
weak economic growth will also limit the extent of pent-up demand.
Nonetheless, net losses are expected to fall this year, from -32%
of revenues in 2020 to -24%.

[embedded content]

Editor’s note:
As the above video interview was conducted over the internet, I
would like to apologise that the audio and visual quality are not
up to the same HD/UHD quality that it normally would be. Hopefully it won’t be too
long until we are once again conducting exclusive video interviews
in person, but for now we have to make do with what we have. Thank
you.

See also:

Future of Airline Distribution and NDC – Interview with Yanik
Hoyles, IATA (November 2019).

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