Business performance for the airline industry is expected to improve into 2021, but the shift will come too late to avoid another year of “deep industry losses” due to coronavirus conditions, a report said today.
As airlines struggle to adjust to the new reality of travel bans and reluctant passengers, they are finding new success in their cargo divisions, which accounted for 12% of industry revenues in 2019 and are expected to grow to 36% of revenues in 2020, the International Air Transport Association (IATA) said.
Performance factors are on track to improve into 2021 as airlines combine aggressive cost-cutting with increased consumer demand due to the re-opening of borders with testing and/or the widespread availability of a vaccine, IATA said.
Those factors could help the industry turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast, but much of the damage has already been done. IATA found that the industry would incur a net loss of $118.5 billion for 2020 (deeper than the $84.3 billion forecast in June), and a net loss of $38.7 billion for 2021 (deeper than the $15.8 billion forecast in June).
“This crisis is devastating and unrelenting. Airlines have cut costs by 45.8%, but revenues are down 60.9%,” Alexandre de Juniac, IATA’s director general and CEO, said in a release. De Juniac this week announced plans to step down from IATA at the end of March 2021, when Willie Walsh, former CEO of International Airlines Group (IAG) will replace him as director general from 1 April 2021.
“The result is that airlines will lose $66 for every passenger carried this year for a total net loss of $118.5 billion. This loss will be reduced sharply by $80 billion in 2021. But the prospect of losing $38.7 billion next year is nothing to celebrate,” de Juniac said. “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.”
The core challenge for airlines has been their stunning loss of travelers, with passenger numbers expected to plummet to 1.8 billion for 2020, a tumble of 60.5% from the 4.5 billion passengers carried in 2019 and roughly the same number that the industry carried in 2003, nearly two decades ago.
But fortunately, planes’ cargo divisions are doing significantly better, although still down from last year. The industry’s total uplift is expected to be 59.7 million tons in 2020, down from 67.6 million tonnes in 2019. Despite that drop, revenues have actually risen, increasing to $117.7 billion in 2020 from $102.4 billion in 2019. That result was driven by a 30% jump in yields in 2020, due to a 45% fall in overall capacity because the precipitous fall in passenger demand which took out belly capacity for cargo (-24%).
“Cargo is performing better than the passenger business. It could not, however, make up for the fall in passenger revenue. 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,” de Juniac said.
Extending that forecast into 2021, the cargo side of the business is expected to continue with strong performance, the group said. Improved business confidence and the important role that air cargo should play in vaccine distribution is expected to see cargo volumes grow to 67.5 million tonnes (up from 59.7 million tonnes in 2020 and essentially matching the 67.6 million tonnes carried in 2019).
That sustained demand will translate into growing revenue, IATA forecasted. 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—such as Covid-19 vaccines—will see a further 5% increase in yields. This will contribute to strong performance in cargo revenues which are expected to grow to an historic high of $139.8 billion.
Gartner, Inc.