“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,” said Willie Walsh, IATA’s Director General.
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:
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.
“Most governments have not yet provided clear indications of the benchmarks that they will use to safely give people back their travel freedom, In the meantime, a significant portion of the $3.5 trillion in GDP and 88 million jobs supported by aviation are at risk. Effectively restarting aviation will energize the travel and tourism sectors and the wider economy. With the virus becoming endemic, learning to safely live, work and travel with it is critical. That means governments must turn their focus to risk management to protect livelihoods as well as lives,” said Walsh.
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.
“Owing to government relief measures, cost-cutting, and success in accessing capital markets, some airlines appear able to ride out the storm. Others are less well-cushioned and may need to raise more cash from banks or capital markets. This will add to the industry’s debt burden, which has ballooned by $220 billion to $651 billion. There is a definite role for governments in providing relief measures that ensure critical employees and skills are retained to successfully restart and rebuild the industry,” said Walsh.
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.
“Containing and reducing costs will be top of mind for airlines. Governments and partners must have the same mentality. And that must be reflected in items big and small. There can be no tolerance for monopoly infrastructure suppliers gouging their customers to recoup losses through higher charges. Equally, we demand an end to the extortionate costs for COVID-19 testing with governments taking their cut on top of that with taxes. Everyone must be aligned in understanding that increased travel costs will mean a slower economic recovery. Cost reduction efforts on all sides are needed,” said Walsh.
Industry Outlook Highlights:
Demand: Travel restrictions, including quarantines, have killed demand. IATA estimates that travel (measured in revenue passenger kilometers or RPKs) will recover to 43% of 2019 levels over the year. While that is a 26% improvement on 2020, it is far from a recovery. Domestic markets will improve faster than international travel. Overall passenger numbers are expected to reach 2.4 billion in 2021. That is an improvement on the nearly 1.8 billion who traveled in 2020, but well below the 2019 peak of 4.5 billion.
- 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.
- Domestic passenger traffic is expected to perform significantly better than international markets. This is driven by strong GDP growth (5.2%), 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: Cargo has outperformed the passenger business throughout the crisis. That trend is expected to continue throughout 2021. Demand for cargo is expected to grow by 13.1% over 2020. This puts the cargo business in positive territory compared to pre-crisis levels (2020 saw a full-year decline of 9.1% compared to 2019). Total cargo volumes are expected to reach 63.1 million tonnes in 2021. That’s nearly at the pre-crisis peak of 63.5 million tonnes which occurred in 2018.
Revenues: Industry revenues are expected to total $458 billion. That’s just 55% of the $838 billion generated in 2019 but represents 23% growth on the $372 billion generated in 2020.
- Passenger revenues are expected to total $231 billion, up from $189 billion in 2020, but far below the $607 billion generated in 2019.
- Cargo revenues are expected to reach $152 billion, a historic high. This is up from $128 billion in 2020 and $101 billion in 2019. Capacity remains constrained owing to the large-scale grounding of the passenger fleet. This removed significant belly capacity, driving up yields 40% in 2020, with a further 5% growth expected in 2021. In 2021 cargo will account for a third of industry revenues. This is significantly above cargo’s historic contribution, which ranged around 10-15% of total revenues. The improvement in cargo, however, is not able to offset the dramatic decline in passenger revenues.
Costs: Airlines have not been able to cut costs as fast as revenues have fallen. Recently we have seen worrying cost trends in fuel and infrastructure:
- Fuel: The cost of jet kerosene fell to $46.6/barrel in 2020. But, with the pick-up in economic activity fuel costs are on the rise. Jet kerosene is expected to rise to an average of $68.9/barrel in 2021, nearing the 2019 average price of $77/barrel.
- Non-fuel: Non-fuel unit costs rose by 17.5% in 2020 as fixed costs were spread over dramatically reduced capacity. As capacity grows in 2021and airline cost-cutting efforts mature, this will partially reverse itself with a 15% decline. “We have seen some worrying signs from our airport and air navigation service providers. Heathrow, for example, is attempting to recoup pandemic losses by expanding its regulated cost base. We are in this crisis together with our partners. Recouping losses from one another is not the answer. We all need to tighten our belts. And the regulators need to act and stamp out monopolistic behaviours,” said Walsh.
Capacity: Capacity is likely to return at a slower pace than demand. That reflects 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% we estimate to be breakeven for profitability in 2021 – even though cash costs of operations are being covered.
Regional Highlights
Significant differentiation is emerging between regions with large domestic markets and those relying primarily on international traffic. Losses are highest in Europe (-$22.2 billion) with only 11% of its passenger traffic (RPK) being domestic. Proportionately, losses are much smaller in North America (-$5.0 billion) and Asia-Pacific (-$10.5 billion) where domestic markets are larger (66% and 45% respectively, pre-crisis).
| REgion | 2021 Demand vs 2019 | 2021 Capacity vs 2019 | 2021 Profit (% of revenues) | 2020 profit (% of revenues) |
|---|---|---|---|---|
| World | -57.0% | -47.2% | -$47.7 billion (-10.4%) | -$126.4 billion (-33.9%) |
| North America | -41.5% | -29.2% | -$5.0% (-2.7%) | -$35.1 billion (-26.8%) |
| Europe | -66.3% | -57.1% | -$22.2 billion (-23.9%) | -$34.5 billion (-43.0%) |
| Asia Pacific | -57.8% | -47.6% | -$10.5 billion (-8.8%) | -$35.0 billion (-31.1%) |
| Middle East | -67.6% | -58.9% | -$4.2 billion (-13.8%) | -$7.9 billion (-28.9%) |
| Latin America | -48.9% | -45.2% | -$4.0 billion (-20.4%) | -$11.9 billion (-80.1%) |
| Africa | -64.5% | -53.6% | -$1.7 billion (-24.0%) | -$2.0 billion (-32.0%) |
- North American carriers are best placed to take advantage of the rapid vaccination boost to domestic travel in the US, as well as the strong economy driving air cargo demand. Losses are reduced to the lowest in any region at -2.7% of total revenues. In 2020 net losses were -26.8% of total revenues.
- European carriers are highly dependent on international passenger revenues, with domestic markets representing only 11% of RPKs. Along with testing, vaccines will play an important role in reopening international travel. Uneven vaccination rollout was already expected to limit the number of international markets opening this year. Slower vaccination in Europe will also restrict the recovery of the important within-Europe market and the North Atlantic. Net losses are expected to be reduced at the slowest rate among the major regions. The region’s carriers are expected to see net losses fall to -23.9% of revenues for 2021 (from -43% in 2020).
- Asia-Pacific carriers see 45% of their RPKs generated on domestic markets and will benefit from the strength of the Chinese domestic market recovery, as well as the relative importance of air cargo to the region. Net losses are expected to be reduced from -31.1% of revenues in 2020 to -8.8% of revenues this year.
- Middle Eastern carriers will benefit from relatively rapid vaccination rates on home markets. They will be hampered, however, by continued travel restrictions on many of the routes to emerging economies that are served through Gulf hub connections. Net losses in 2021 are forecast at -13.8% of revenues (reduced from -28.9% of revenues in 2020). It will be the third smallest regional loss.
- Latin American carriers are advantaged by having almost half (48%) of their RPKs being generated on domestic markets, in particular the large Brazilian home market. They are starting from relatively large losses in 2020 and, in some parts of the region, a slow rate of vaccination. Revenues from the growth in domestic travel are forecast to cut net losses by more than two-thirds this year—to -20.4% of revenues in 2021 from -80.1% in 2020.
- African carriers will see slow vaccination rates limit international travel. With only 14% of the region’s RPKs generated on domestic markets this will provide little cushion. Relatively weak economic growth will also limit the extent of pent-up demand. Nonetheless, net losses are expected to fall this year, from -32% of revenues in 2020 to -24%.
