Destination: Recovery
November 25 2020 06:13 PM
Alex Macheras
By Alex Macheras

By Alex Macheras

Aviation sector recovery is not yet on the horizon. The International Air Transport Association (IATA) announced a revised outlook for airline industry performance in 2020 and 2021.

Deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast.

A net loss of $118.5bn is expected for 2020 (deeper than the $84.3bn forecast in June)

A net loss of $38.7bn is expected in 2021 (deeper than the $15.8bn forecast in June)

Performance factors in 2021 will show improvements on 2020; and the second half of 2021 is expected to see improvements after a difficult 2021 first half. 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) to 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 $66 for every passenger carried this year for a total net loss of $118.5bn. This loss will be reduced sharply by $80bn in 2021. But the prospect of losing $38.7bn 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.

Airline financial performance is expected to see a significant turn for the better in 2021, even if historically deep losses prevail. The expected $38.7bn loss in 2021 will be second only to 2020 performance.

On the assumption that there is some opening of borders by mid-2021 (either through testing or growing availability of a vaccine), overall revenues are expected to grow to $459bn ($131bn improvement on 2020, but still 45% below the $838bn achieved in 2019). In comparison, costs are only expected to rise by $61bn, delivering overall improved financial performance. Airlines will still lose, however, $13.78 for each passenger carried. By the end of 2021 stronger revenues will improve the situation, but the first half of next year still looks extremely challenging.

Passenger numbers are expected to grow to 2.8bn in 2021. That would be a billion more travellers than in 2020, but still 1.7bn travellers short of 2019 performance. Passenger yields are expected to be flat and the load factor is expected to improve to 72.7% (an improvement on the 65.5% expected for 2020, but still well below the 82.5% achieved in 2019).

In Australia, the boss of Qantas, the country’s largest airline, said once a virus vaccine becomes widely available, his carrier will almost certainly require passengers to use it before they can travel abroad or land in Australia.

Qantas chief executive Alan Joyce said he has been talking to his counterparts at other airlines around the world about the possibility of a “vaccination passport” for international travellers.

“We are looking at changing our terms and conditions to say for international travellers, that we will ask people to have the vaccination before they get on the aircraft,” Joyce told Australia’s Network Nine television.

South Korea’s largest airline has a similar message. Jill Chung, a spokesperson for Korean Air, said on Tuesday there is a real possibility that airlines will require that passengers be vaccinated. She said that is because governments are likely to require vaccinations as a condition for lifting quarantine requirements for new arrivals.

While Korean Air is reviewing several possibilities for screening, any change by the company or other airlines would be the result of coordination with governments, Chung said.

“This is not something for airlines to independently decide,” she said.

Air New Zealand echoed Chung’s position.

“Ultimately, it’s up to governments to determine when and how it is safe to reopen borders and we continue to work closely with authorities on this,” Air New Zealand said in a statement.

Australia, South Korea and New Zealand & Taiwan are examples of countries that have been able to suppress the virus to an extent that normal life for its citizens has returned.

“With the world coming closer to coronavirus vaccines and negative tests also becoming requirements for lifting travellers from self-quarantines in countries across the world, airlines are feeling the need for an effective system to screen passengers for vaccinations and tests,” Chung said.

Another concept being considered by the aviation sector is a trial of the “Common Pass”, an app endorsed by the World Economic Forum that aims to provide a standardised format for airlines to evaluate the coronavirus test results of passengers to determine whether they should travel.

IATA also announced a similar app that it is in the final development phase of the IATA Travel Pass, a digital health pass that will support the safe reopening of borders. The IATA Travel Pass will manage and verify the secure flow of necessary testing or vaccine information among governments, airlines, laboratories and travellers.

The author is an aviation analyst.





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