Deeper aviation losses are expected for 2020 and 2021 than initially expected but the recovery is expected to start by the second half of 2021, which is quicker than expected.
This is according to Iata Chief Economist, Brian Pearce. He presented a report on the outlook for the air transport and airline industry at the Iata AGM on Tuesday, calling COVID-19 “the biggest shock to hit aviation since World War 2”.
The revised outlook for airline industry performance in 2020 and 2021:
- A nett loss of US$118.5bn is expected for 2020 (deeper than the $84.3bn forecast in June).
- A nett loss of US$38.7bn is expected in 2021 (deeper than the $15.8bn forecast in June).
- For Africa, the losses will amount to US$2bn in 2020 and US$1.1bn in 2021.
Pearce said performance factors in 2021 would show improvements on 2020 and the second half of 2021 was expected to see improvements after a difficult first half. “Aggressive cost-cutting is expected to combine with increased demand during 2021 – due to the re-opening of borders with testing and/or the widespread availability of a vaccine – to see the industry turn cash-positive in the fourth quarter of 2021, which is earlier than previously forecast,” he said.
Key issues must be addressed
However, CEO and Secretary-General of Iata, Alexandre de Juniac, cautioned that while the industry would see improved performance in 2021 compared with 2020, the road to recovery was expected to be long and difficult.
Passenger volumes are not expected to return to 2019 levels until 2024 at the earliest, with domestic markets recovering faster than international services.
Several critical challenges need urgent attention:
- Debt levels and financial support: Airlines are surviving on financial life support from governments. Even after $173bn of government support of various kinds in 2020, the median airline has just 8.5 months of cash to survive. Many have far less as the industry enters the critical winter period, which is characterised by weak demand, even in normal times. While cash burn has diminished from the peak of the crisis, airlines are still expected to burn an average of $6.8bn/month during the first half of 2021, before the industry turns cash positive in the fourth quarter of 2021.
“Bridging airlines to the recovery is one of the most important investments that governments can make. It will save jobs and kick-start the recovery in the travel and tourism sector, which accounts for 10% of global GDP,” said De Juniac.
- Closed borders/quarantine: The biggest factors impeding the industry’s recovery are travel restrictions and quarantine measures that effectively prevent a meaningful revival of travel. The most immediate and critical solution is the safe reopening of borders using systematic COVID-19 testing. Longer-term, the widespread availability of COVID-19 vaccinations should enable borders to remain open without testing or restriction, but the timeline for vaccine availability is uncertain.
“We have the ability to safely reopen travel with systematic testing. We cannot wait for the promise of a vaccine. With 46 million jobs at risk in the travel and tourism sector alone because of plummeting air travel, we must act fast with solutions that are at hand. We have fast, accurate and scalable testing that can safely do the job. The airlines are ready. Governments understood the criticality of a viable air transport sector when they invested billions to keep it afloat. Now they need to protect those investments by giving airlines the means to safely do business,” said De Juniac.
“The numbers couldn’t get much worse. But there is a way forward. With the continued financial support of governments to keep airlines financially viable and the use of testing to enable travel without quarantine, we have a plan to overcome the worst immediately,” De Juniac pointed out.
He said, longer-term, the progress on vaccines was encouraging but, most importantly, people have not lost their desire to travel. “The market response to even small measures to lift quarantine is immediate and strong. Where barriers have been removed, travel rebounded.
“The thirst for the freedom to fly has not been overcome by the crisis. There is every reason for optimism when governments use testing to open borders. And we need to make that happen fast,” said De Juniac.