MUMBAI: Airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1% and revenues will fall 50% to $419 billion from $838 billion in 2019, according to International Air Transport Association (IATA) financial outlook for the global air transport industry released on Tuesday. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.
Alexandre de Juniac, IATA’s director general and CEO said that financially, 2020 will go down as the worst year in the history of aviation. “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. That’s why government financial relief was and remains crucial as airlines burn through cash,” he said.
This is provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us. “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. That’s 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,” said de Juniac.
The biggest driver of industry losses was drastically shrunken passenger demand as international borders closed and countries locked down to prevent the spread of the virus. At the low point in April, global air travel was roughly 95% below 2019 levels, said the IATA repot.
“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,” it said.
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,” said the report.
However, 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,” according to IATA. But 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).