The aviation industry is expected to see continued losses next year — although performance could be better — as rising cargo revenue won't be able to pare down losses from the lack of passenger demand worldwide.
The International Air Transport Association (IATA) said it revised its outlook for the airline industry performance for this year and next noting that it now expects a deeper net loss of US$118.5 billion this year, compared to the US$84.3 billion it anticipated in June.
For 2021, it projects a net loss of US$38.7 billion, more than double the US$15.8 billion it forecasted earlier.
"Deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast," IATA said in its revised outlook. "Performance factors in 2021 will show improvements in 2020, and the second half of 2021 is expected to see improvements after a difficult 2021 first half."
Cash positive by Q4 2021
The industry group noted that "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 — and it will see the industry "turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast."
"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 US$66 for every passenger carried this year for a total net loss of US$118.5 billion. This loss will be reduced sharply by US$80 billion in 2021," said Alexandre de Juniac, IATA’s Director General and CEO.
"But the prospect of losing US$38.7 billion next year is nothing to celebrate. 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,” said Alexandre de Juniac, IATA’s Director General and CEO.
2020 Outlook
IATA noted that the COVID-19 crisis "challenged the industry for its very survival," and this year, in the face of a half-trillion-dollar revenue drop (from US$838 billion in 2019 to US$328 billion), airlines cut costs by US$365 billion (from US$795 billion in 2019 to US$430 billion in 2020).
"The history books will record 2020 as the industry’s worst financial year, bar none. 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 US$173 billion in financial support by governments we would have seen bankruptcies on a massive scale," said de Juniac.
As passenger performance takes a hit cargo performance was on a roll this year — although still below the level seen in 2019 due to lack of bellyhold capacity to move freight.
IATA said uplift is expected to be 54.2 million tonnes in 2019, down from 61.3 million tonnes recorded in 2019.
Meanwhile, cargo revenues are bucking the trend, increasing to US$117.7 billion in 2020 from US$102.4 billion in 2019.
IATA said a 45% fall in overall capacity, driven largely by the "precipitous fall" in passenger demand — which took out critical belly capacity for cargo (-24%), pushed yields up by 30% in 2020.
"Cargo is performing better than the passenger business. It could not, however, make up for the fall in passenger revenue," de Juniac said. "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."
In 2019, cargo accounted for a mere 12% of airline revenues but it is expected to triple its contribution to 36% of airline's bottom line this year.
2021 Outlook
"Airline financial performance is expected to see a significant turn for the better in 2021, even if historically deep losses prevail," IATA said, noting that the losses for 2021 "will be second only" to the industry performance seen in 2020.
On the assumption that there is some opening of borders by mid-2021 — either through testing or growing availability of a vaccine — IATA said overall revenues are expected to grow to US$459 billion, adding US$131 billion from 2020, but still 45% below the US$838 billion pre-coronavirus levels in 2019.
"By the end of 2021 stronger revenues will improve the situation, but the first half of next year still looks extremely challenging," IATA said.
Cargo to match 2019 performance in 2021
The airline industry group said the cargo side of the business is expected to continue with a "strong performance."
"Improved business confidence and the important role that air cargo should play in vaccine distribution is expected to see cargo volumes grow to 61.2 million tonnes — up from 54.2 million tonnes in 2020 and essentially matching the 61.3 million tonnes carried in 2019," IATA said.
A continued capacity crunch due to the slow reintroduction of belly capacity from passenger services combined with a higher proportion of time and temperature-sensitive cargo (vaccines) will see a further 5% increase in yields, it added, noting that this will contribute to strong performance in cargo revenues which are expected to grow to a "historic high of US$139.8 billion" next year.
Long and difficult road to recovery
"While the industry will see improved performance in 2021 compared to 2020, the road to recovery is expected to be long and difficult," IATA said, noting how passenger volumes are not expected to return to 2019 levels until 2024 at the earliest, with domestic markets recovering faster than international services.
Add to that, the group cited critical challenges facing the industry such as rising debt levels and the need for more financial support from the government as well as closed borders/quarantine measures which it described as the "biggest factor impeding the industry’s recovery."
"Airlines are surviving on financial life support from governments. Even after $173 billion of government support of various kinds in 2020, the median airline has just 8.5 months of cash to survive," it said.
"The financial damage of this crisis is severe. Government support has kept airlines alive to this point. More is likely needed as the crisis is lasting longer than anyone could have anticipated. And it must come in forms that do not increase the already high debt load which has ballooned to US$651 billion," IATA's de Juniac said.
Regional Performance
IATA said all regions are impacted by the crisis, but those airlines with larger domestic markets or with large cargo operations are performing better.
"The differences between the regions become "more exaggerated" in 2021 with the Asia Pacific and North American carriers seeing the most significant reductions in expected losses.
In terms of demand, Asia Pacific will see a 62% decline in 2020 over 2019, Latin America (-64%), North America (-66%). The most reduction was recorded in the Middle East (-73% over 2019), Africa (-72%) and Europe (-70%).
IATA said North American airlines have benefited from an earlier recovery in the US domestic market — the largest domestic market in the world — and have already restructured more extensively than other regions.
APAC, North America to lead rebound
For Asia-Pacific, it said Chinese airlines and China’s economy lead the recovery, with the large Chinese domestic market allowing a return to profitability by the end of 2020. IATA noted that the success in virus control also helped some other parts of the region.
For Latin America, IATA said aside from the little government support, efforts to contain the coronavirus pandemic has also been "challenging" in the region. The vaccine distribution may also be a little behind in the region compared to more developed markets, leading to a more delayed recovery in financial performance.
For Europe, the industry group noted how the carrier operators there rely on international market revenues — but with economies hit by a severe 2nd wave of COVID-19, it said "stronger revenues do not arrive until later in 2021."
For Middle East airlines, it said the main challenge is connecting traffic over Gulf hubs and elsewhere since long-haul air travel markets have been slowest to reopen. However, airlines in this region have grown their cargo business and this has been some offset.
For Africa, IATA cited the little government support for carriers in the region and the lack of infrastructure needed to move the vaccine for distribution.
"The relative lack of cold chain facilities in the region may delay the distribution of vaccines and this region is expected to experience a delayed recovery in financial performance," IATA said.