Story ID: GPiataoutlook06092020
IATA Sees Airline Losses Continuing in 2021
By: Gregory Polek
Caption: The International Air Transport Association projects historically steep losses of $84.3 billion this year to decline to $15.8 billion in 2021.
Word Count: 868
The International Air Transport Association on Tuesday issued a mixed financial outlook for the airline industry for next year, projecting significant improvement in cash flow over a historically dismal 2020 but overall losses totaling $15.8 billion. In its first profit and loss projection since it began a series of weekly conference calls with media in the early days of the Covid-19 crisis, IATA said it expects airlines to lose $84.3 billion this year, for a negative net profit margin of 20.1 percent. It expects revenues to fall 50 percent, from $838 billion in 2019 to $419 billion this year. IATA said its projections assume no second wave of Covid cases.

“Financially, 2020 will go down as the worst year in the history of aviation,” said IATA director general Alexandre de Juniac. “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.”

IATA attributed closures of international borders and lockdowns within countries as the biggest drivers of this year’s losses. At its low point in April, air traffic ran at 95 percent below 2019 levels. Although the industry has seen some signs of improvement since then, IATA expects traffic levels measured in revenue passenger kilometers (RPKs) to fall by 54.7 percent this year. Airlines will see passenger numbers cut roughly in half this year, to 2.25 billion, which equates to 2006 levels. However, they will manage to cut capacity by only 40 percent, said IATA, leaving an inordinate number of empty seats.

IATA expects passenger revenues to fall to $241 billion from $612 billion in 2019. That decline exceeds the fall in demand, reflecting an expected 18 percent drop in passenger yields as airlines try to encourage people to fly again through price stimulation. IATA’s projections call for load factors to average 62.7 percent for 2020, some 20 percentage points below the record high of 82.5 percent achieved in 2019.

Meanwhile, costs are not falling as fast as demand. While total expenses of $517 billion run 34.9 percent below 2019 levels, revenues will see a 50 percent drop. Non-fuel unit expenses will rise by 14.1 percent, as airlines must spread fixed costs over fewer passengers. Lower use of aircraft and seats as a result of restrictions will also add to rising costs.  

On a positive note, fuel prices offer some relief. In 2019 jet fuel averaged $77 per barrel, compared with a forecast average for 2020 of $36.8 per barrel. IATA expects fuel to account for 15 percent of overall costs, compared to 23.7 percent last year.

In the cargo sector, IATA expects overall freight tonnes carried to drop by 10.3 million tonnes to 51 million tonnes. However, a severe shortage in cargo capacity due to the lack of available belly cargo capacity on passenger aircraft will push up rates by some 30 percent for the year, resulting in near-record cargo revenue of $110.8 billion in 2020, compared with $102.4 billion last year. IATA expects cargo’s share of industry revenues to rise from 12 percent last year to 26 percent in 2020.

Although IATA said it expects the recovery to accelerate next year, the industry will continue to suffer from pre-crisis levels of performance on several measures. For example, while IATA expects total passenger numbers to rebound to 3.38 billion, or roughly 2014 levels, they’ll remain well below the 4.54 billion travelers last year.  While 2021 revenues rise to an estimated $598 billion, for a 42 percent year-over-year improvement, they will remain 29 percent below 2019’s total of $838 billion.

While IATA expects 2021 unit costs to fall as airlines spread fixed costs across more passengers, continued virus control measures will limit the gains by reducing aircraft use rates, it said.

Separately, cargo’s enlarged footprint will remain as that sector’s revenues reach what IATA projects as a record $138 billion next year, or a 25 percent increase over 2020. Such a performance would result in a 23 percent share of total industry revenues, roughly double the cargo industry’s historical share. IATA expects air cargo demand to remain strong as businesses restock at the start of the economic upturn, while a slow return of the passenger fleet will limit the growth of cargo capacity and keep cargo yields steady at 2020 levels.

The association expects jet fuel prices to increase to an average of $51.8 per barrel for the year as global economic activity and oil demand rises, thereby adding a measure of cost pressure on airlines, albeit a modest one relative to historic prices.

“Airlines will still be financially fragile in 2021,” noted De Juniac. “Passenger revenues will be more than one-third smaller than in 2019. And airlines are expected to lose about $5 for every passenger carried. The cut in losses will come from re-opened borders leading to increased volumes of travelers. Strong cargo operations and comparatively low fuel prices will also give the industry a boost. Competition among airlines will no doubt be even more intense. That will translate into strong incentives for travelers to take to the skies again. The challenge for 2022 will be turning reduced losses of 2021 into the profits that airlines will need to pay off their debts from this terrible crisis.”