IATA Forecasts Continued Airline Losses in 2021
Many industries have suffered at the hands of COVID-19 during 2020, resulting in extensive job losses as hundreds of businesses enter administration. COVID-19, however, has particularly ravaged the airline industry during 2020 as a result of travel restrictions, and it’s anticipated that significant financial losses will continue into 2021.
The International Air Transport Association (IATA) has forecast an estimated USD 118.5 billion net loss for airlines during 2020, a substantial increase from June’s forecast of USD 84.3 billion. Whilst airlines are set to see an improvement in 2021; the IATA still expects to see a net loss of USD 38.7 billion, compared to June’s prediction of USD 15.8 billion.
Airline progress in 2021
It’s thought that the first half of 2021 will remain challenging for the airline industry, primarily down to the fact that many countries are yet to open up their borders. On the basis that countries begin to open up borders by the middle of 2021, it’s predicted that overall airline revenues could grow to USD 459 billion. Whilst this figure is a USD 131 billion increase from 2020 levels, it remains 45% under 2019 revenues which came to USD 838 billion.
The IATA is confident that passenger demand will see substantial growth in 2021 by an estimated 2.8 billion, which is 1 billion more than in 2020. Whilst passenger growth is promising, the projected levels for 2021 are still 1.7 billion below pre-pandemic levels.
Cargo flights are also expected to see an improved performance in 2021, particularly in terms of the distribution of COVID-19 vaccines. The IATA has forecast that volumes will grow to 61.2 million tonnes, an increase from 2020 volumes of 54.2 million tonnes and almost reaching 2019 levels of 61.3 million tonnes. The surge in volumes in 2021 is likely to bring in cargo revenues of USD 139.8 billion, which would be a record high.
What are the biggest threats to airline recovery in 2021?
Whilst the airline industry will begin the road to recovery in 2021; it is likely to be several years before revenues reach 2019 levels, with the IATA forecasting airline normality to resume in 2024. In the meantime, there will be a handful of challenges which airlines will need to face over the coming year and will likely impact financial growth.
As it stands, the airline industry is relying on government financial support, as it’s reported that over USD 173 billion has been distributed to airlines throughout 2020. Despite government assistance, it’s estimated that the average airline only has 8.5 months’ worth of cash available. Smaller airlines likely have considerably reduced available funds to survive as we hit the winter period, where passenger demand is quiet even under normal circumstances. It’s thought that airlines will continue to burn through their cash reserves during the beginning of 2021, not becoming cash positive until Q4, 2021.
Travel restrictions brought about by COVID-19 remains the biggest threat to the airline industry in 2021. There are still many countries, including a handful across Europe, which remain closed to foreign citizens or require travellers to prove that they have a worthy purpose of entering the country. It is hoped that COVID testing, in addition to the gradual rollout of COVID-19 vaccines across multiple countries, will help to ease travel restrictions and allow travellers to enter other countries freely.
Alexandre de Juniac, CEO of the IATA, stated that COVID testing is an immediate solution to open up air travel and that the airline industry can no longer wait on the promise of vaccines to be approved in each country. Juniac went on to highlight the urgency for the government to act fast and allow the airline industry to implement their travel safety solutions to protect millions of livelihoods.
The essence of the IATA’s 2021 airline forecast is that whilst passenger demand remains strong, and airlines will begin to rebuild their financial strength, the industry will remain fragile and open to many challenges. The introduction of Pfizer’s vaccine in the UK and US should begin to pave the way for COVID immunity, allowing countries to open their borders and for travel restrictions to be eased. Whilst the road to recovery for airlines will be challenging, it is at least headed in the right direction.