When will aviation recover in full?
The air connectivity which is still decimated by the ongoing COVID-19 pandemic is slowly recovering, giving more hopes to survive for the airlines worldwide. Both airlines and passengers expect the COVID-19 vaccine to help the aviation industry to bounce back quickly. However, analysts of the International Air Transport Association (IATA) forecast that despite the COVID-19 vaccines and testing procedures rolling out worldwide, the recovery of demand for air travel would take several years and would not reach the pre-crisis levels before 2024.
2020: aviation industry’s worst financial year ever
The COVID-19 pandemic crisis challenged the aviation industry for its survival in 2020. As revenues dropped from $838 billion in 2019 to $328 billion in 2020, air carriers were forced to fight to stay afloat by cutting costs from $795 billion in 2019 to $430 billion in 2020. However, the cash burn is forecasted to continue until at least the end of 2021, based on the latest IATA data update.
“The history books will record 2020 as the industry’s worst financial year, bar none,” stated Alexandre de Juniac, the Director-General, and CEO of IATA. “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.”
According to calculations made by IATA, passenger numbers are expected to fall to 1.8 billion for 2020, pushing the industry back to the levels of 2003. In comparison to the “good old times”, passenger numbers were almost 61% lower than the 4.5 billion in 2019. Demand fell by 66%, load factor plunged to 65.5% ‒ the lowest level last seen in 1993. This significant downturn in the demand led to passenger revenue drop to $191 billion in 2020 reaching less than a one-third part of the $612 billion earned in 2019.
Meanwhile, the cargo operations showed better performance in 2020 than in 2019. The analysts counted that despite a 45% fall in overall capacity driven by the fall in passenger demand, which took out critical aircraft belly capacity for cargo, the cargo revenues increased to $117.7 billion in 2020 in comparison to $102.4 billion reached in 2019.
“Cargo is performing better than the passenger business. It could not, however, make up for the fall in passenger revenue. But it has become a significantly larger part of airline revenues and cargo revenues are making it possible for airlines to sustain their skeleton international networks,” outlined de Juniac.
IATA forecasts that air cargo should recover significantly faster than commercial operations. The analysts expected that cargo operations should recover to 2019 levels during 2021.
Predictions: how airlines will perform in 2021?
IATA forecasts that the aviation industry will continue to suffer deep losses during 2021. The latest analyst predictions are more pessimistic than they were in the early summer of 2020. In June 2020, the analysts predicted that the industry would face a net loss reaching $84.3 billion by the end of 2020.
However, a revised outlook for airline industry performance in 2020 and 2021 predicted that the industry would suffer deeper losses of up to $118.5 billion for 2020. But it would be able to cut those losses to $38 billion in 2021, the analysts say.
“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,“ said the CEO of IATA.
“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,” stated de Juniac.
Airline financial performance is expected to see a significant turn for the better in 2021, even if historically deep losses prevail. However, airlines worldwide will have a long way to go for recovery. On the assumption that the COVID-19 vaccine distribution and massive testing would help countries to reopen their borders by mid-2021, IATA expects that the overall revenues should grow to $459 billion in 2021. In comparison to 2020, it would become a significant improvement of $131 billion but it would be still 45% below the $838 billion achieved in 2019.
In 2021, passenger numbers are expected to grow to 2.8 billion. That would be a billion more travelers than in 2020, but still 1.7 billion travelers short of 2019 performance. Meanwhile, the passenger load factor is expected to improve to 72.7% making an improvement on the 65.5% expected for 2020, but still being well below the 82.5% achieved in 2019. However, IATA expects the air passenger traffic to recover by little steps.
“We continue to expect the recovery in air passenger traffic to be slow in H1 2021, more or less in line with the improvements we have seen since the summer. Vaccines are unlikely to be widely distributed, even in richer countries, and renewed [the COVID-19] outbreaks are likely. Acceptance by governments of rapid testing to accept [the COVID-19] negative passengers are limited, something IATA has been calling for,” Chris Goater, the Assistant Director for Corporate Communications at IATA revealed to AeroTime News via email.
“We have also seen that governments have struggled to come up with efficient, coordinated tracking and testing approaches at airports,” added Goater.
IATA forecasts the systematic passenger testing and the vaccine will be two key factors that will help the industry to recover while regaining passenger confidence for air travel. The authority expects that the aggressive cost-cutting manner and the expected increase in passenger demand related to or the widespread availability of a vaccine and testing procedures will help airlines to turn cash-positive in Q4 2021.
“Over H1 2021 we hope that systematic testing will become more accepted. And in H2 we think that the vaccine will become available in a more widespread manner, especially in richer countries but also in China and certain emerging markets. On top of the positive economic impact, that would also boost travelers’ confidence and allow governments to remove travel restrictions to a degree,” Goater wrote to AeroTime News.
IATA notices a trend that travelers are shifting towards domestic or short-haul travel in comparison to long-haul, as it is perceived safer. This indicates that while the whole aviation industry will see an improved performance in 2021 compared to 2020, the domestic markets are expected to perform better than international services.
However, the road to full recovery is expected to be long and difficult as passenger volumes are not expected to return to 2019 levels until 2024 at the earliest.
Which region will take a leading position in the recovery competition?
While all the regions worldwide are impacted by the COVID-19 crisis, some of them are expected to perform better than others. IATA suggests that air carriers in the Asia Pacific will recover first. Chinese air operators might take a leading position in the industry recovery in 2021, as the large Chinese domestic market has started to return to profitability since the end of 2020.
IATA states that the key factors, which should help the Chinese airlines to recover faster than airlines in other regions, is the successful virus control as well as the number of cargo operations. Airlines with large cargo operations have already shown better financial performance compared to those relying on commercial passenger flights only.
Air carriers in North America will likely take the benefit from an earlier recovery in the United States ‒ the largest domestic market in the world. North American airlines have already restructured more extensively than, for example, European airlines, whose market was hit by a second severe wave of the pandemic. IATA predicts that the European region will begin the recovery later in 2021, after the vaccine is spread more widely.
Since the long-haul air travel market is expected to reopen slower, Middle East airlines would likely continue to grow their air cargo business. Meanwhile, the relative lack of cold chain facilities in Africa and vaccine distribution issues in the Latin America will lead airlines in both regions to a more delayed financial recovery.
Lima airport: truck hit by plane was part of coordinated drill; pilots arrested
The operators of Lima Airport, where a LATAM Airbus A320neo collided with a fire truck over the weekend, have provided a...
LOT Polish airlines passenger in custody after charging toward cockpit door
A passenger on a LOT Polish Airlines flight has been taken into custody after charging toward the cockpit door and causi...
Finnair cancels 100 flights departing from Helsinki Airport due to staff strike
Finnair has been forced to cancel 100 flights departing from #HelsinkiAirport following “illegal” cabin crew...