The International Air Transport Association (IATA) expects net airline industry losses of $47.7 billion in 2021, an improvement on the estimated net industry loss of $126.4 billion in 2020.
Willie Walsh, IATA’s Director General, stated, “This crisis is longer and deeper than anyone could have expected. Losses will be reduced from 2020, but the pain of the crisis increases. There is optimism in domestic markets where aviation’s hallmark resilience is demonstrated by rebounds in markets without internal travel restrictions. Government imposed travel restrictions, however, continue to dampen the strong underlying demand for international travel. Despite an estimated 2.4 billion people travelling by air in 2021, airlines will burn through a further $81 billion of cash.”
1. Immediate priorities
The outlook points to the start of industry recovery in the latter part of 2021. In the face of the ongoing crisis, IATA calls for the following to be prioritised:
- Plans for a restart in preparation for a recovery: IATA continues to urge governments to have plans in place so that no time is lost in restarting the sector when the epidemiological situation allows for a re-opening of borders.
- Employment Support: Industry losses of this scale imply a cash burn of $81 billion in 2021 on top of $149 billion in 2020. Government financial relief measures and capital markets have been filling this hole in airline balance sheets, preventing widespread bankruptcies. The industry will recover but more government relief measures, particularly in the form of employment support programmes, will be needed this year.
- Cost containment/reduction: The whole industry will come out of the crisis financially weakened. Cost containment and reductions, wherever possible, will be key to restoring financial health.
2. Industry outlook and demand for travel
Regarding demand for air travel, travel restrictions, including quarantines, have seriously reduced demand. IATA estimates that travel will recover to 43% of 2019 levels over the year and while that is a 26% improvement on 2020, it is far from a recovery. Domestic markets will improve faster than international travel, while overall passenger numbers are expected to reach 2.4 billion in 2021. That is an improvement on the nearly 1.8 billion who travelled in 2020, but well below the 2019 peak of 4.5 billion.
3. International passenger traffic
International passenger traffic remained 86.6% down on pre-crisis levels over the first two months of 2021. Vaccination progress in developed countries, particularly the US and Europe, is expected to combine with widespread testing capacity to enable a return to some international travel at scale in the second half of the year, reaching 34% of 2019 demand levels. 2021 and 2020 have opposite demand patterns: 2020 started strong and ended weak, while 2021 is starting weak and is expected to strengthen towards year-end. The result will be zero international growth when comparing the two years.
4. Domestic passenger traffic
Meanwhile domestic passenger traffic is expected to perform significantly better than international markets, driven by strong GDP growth, accumulated consumer disposable cash during lockdowns, pent-up demand, and the absence of domestic travel restrictions. IATA estimates that domestic markets could recover to 96% of pre-crisis (2019) levels in the second half of 2021. That would be a 48% improvement on 2020 performance. Cargo has outperformed the passenger business throughout the crisis with this trend expected to continue throughout 2021.
Capacity is likely to return at a slower pace than demand, reflecting the pressure on airlines from debt and fuel prices to operate only cashflow-positive services. Taking cargo and passenger traffic into account, the overall weighted load factor is forecast to rise a little to 60.3% in 2021. This is considerably below the 66% IATA estimate to be breakeven for profitability in 2021 – even though cash costs of operations are being covered.