On average, each day of 2020 will add $230 million in losses to the global aviation industry. Financially, the year will go down as the worst year in the history of aviation, said International Air Transport Association (IATA), the trade association of global airlines.
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 per cent decline expected for the year. However, cargo is one bright spot for the industry, said IATA.
Revenue to fall 50%
Airlines globally are expected to lose $84.3 billion in 2020 for a net profit margin of -20 per cent. Revenue will fall 50 per cent to $419 billion from $838 billion in 2019. However, in 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion, said the global agency in its financial outlook for the global air transport industry.
The loss is based on an estimate of 2.2 billion passengers in year 2020 – airlines will lose $37.54 per passengers.
“That’s why government financial relief was and remains crucial as airlines burn through cash,” said Alexandre de Juniac, IATA’s Director General and CEO, in a statement.
Passenger demand evaporated as international borders closed and countries locked down to prevent the spread of the virus. This is the biggest reason for the losses. At the low point in April, global air travel was roughly 95 per cent below 2019 levels. There are indications that traffic is slowly improving. Nonetheless, traffic levels (in Revenue Passenger km) for 2020 is expected to fall by 54.7 per cent when compared to 2019.
Passenger revenues are expected to fall to $241 billion (down from $612 billion in 2019). This is greater than the fall in demand, reflecting an expected 18 per cent fall in passenger yields as airlines try to encourage people to fly again through price stimulation. Load factors are expected to average 62.7 per cent for 2020, 20 percentage points below the record high of 82.5 per cent achieved in 2019.
Costs are not falling as fast as demand. Total expense of $517 billion is 34.9 per cent below 2019 levels, but revenues will see a 50 per cent drop. Non-fuel unit costs will rise by a sharp 14.1 per cent as fixed costs are spread over fewer passengers. Lower utilisation of aircraft and seats as a result of restrictions will also add to rising costs, the statement said.
However, 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 per cent of overall costs (compared to 23.7 per cent in 2019).
Cargo, the bright spot
Cargo is the one bright spot in the industry. Compared to 2019, overall freight tonnes carried is expected to drop by 10.3 million tonnes to 51 million tonnes. However, a severe shortage in cargo capacity due to the unavailability of belly cargo on (grounded) passenger aircraft is expected to push rates up by some 30 per cent for the year.
Cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4 billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26 per cent – up from 12 per cent in 2019.
Although losses will be significantly reduced in 2021 from 2020 levels, the airline industry’s recovery is expected to be long and challenging, added the statement.