An estimated 2.4 billion people will travel by plane in 2021
The figure has been revealed in a new report published by the International Air Transport Association. It highlights that domestic flights allow airlines to reduce losses
The International Air Transport Association (IATA) expects airline industry net losses of $ 47.7 billion in 2021 (-10.4% net profit margin). This is an improvement on the industry's estimated net loss of $ 126.4 billion in 2020 (-33.9% net profit margin).
“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 the characteristic resilience of aviation is demonstrated by rebounding in markets with no internal travel restrictions. However, government-imposed travel restrictions continue to dampen strong underlying demand for international travel. Although an estimated 2.4 billion people will travel by air in 2021, airlines will spend another $ 81 billion in cash, ”said Willie Walsh, IATA Director General.
The outlook points to the beginning of the recovery of the industry in the latter part of 2021. Faced with the current crisis, IATA calls for:
Plans for a restart in preparation for a recovery: IATA continues to urge governments to have plans so that no time is wasted in restarting the sector when the epidemiological situation allows a reopening of borders.
“Most governments have yet to provide clear indications of the benchmarks they will use to safely return people's freedom of travel. Meanwhile, a significant portion of the $ 3.5 trillion of GDP and 88 million jobs supported by aviation are at risk. The effective restart of aviation will invigorate the travel and tourism sectors and the economy in general. With the virus becoming endemic, learning to live, work and travel safely with it is critical. That means governments must focus on risk management to protect livelihoods and lives, ”Walsh said.
Employment support: losses of this scale in the industry imply a cash burn of $ 81 billion in 2021 in addition to $ 149 billion in 2020. Financial aid measures from the government and capital markets have been filling this gap on airline balance sheets, avoiding widespread bankruptcies. The industry will rebound, but more government assistance measures will be needed this year, particularly in the form of employment support programs.
“Due to government relief measures, cost reduction and successful access to capital markets, some airlines seem able to weather the storm. Others are less protected and may need to get more cash from banks or capital markets. This will add to the industry's debt burden, which has skyrocketed $ 220 billion to $ 651 billion. Governments have a defined role in providing relief measures that ensure that employees and critical skills are retained to successfully restart and rebuild the industry, ”Walsh said.
Cost containment / reduction: the entire industry will emerge from the crisis financially weakened. Containment and cost reductions, wherever possible, will be key to restoring financial health.
“Containing and reducing costs will be a priority for airlines. Governments and partners must have the same mindset. And that should be reflected in large and small elements. There can be no tolerance for monopoly infrastructure providers who abuse their customers to recoup losses through higher fees. Similarly, we demand an end to the exorbitant costs of COVID-19 testing and governments take their share on top of that with taxes. Everyone needs to be aligned to understand that rising travel costs will mean a slower economic recovery. Cost reduction efforts are needed on all sides, ”Walsh said.
Industry Outlook Highlights:
Demand: Travel restrictions, including quarantines, have killed the demand. IATA estimates that travel (measured in revenue passenger kilometers or RPK) will recover to 43% from 2019 levels during the year. While that's a 26% improvement over 2020, it's far from a recovery. Domestic markets will improve faster than international travel. The total number of passengers is expected to reach 2.4 billion in 2021. That's an improvement over 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% below pre-crisis levels during the first two months of 2021. Vaccination progress is expected in developed countries, particularly in the US and Europe , is combined with a generalized testing capacity to allow the return to some large-scale international travel. 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 starts weak and is expected to strengthen towards the end of the year . 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 due to strong GDP growth (5.2%), consumer cash available accumulated during closings, stifled 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.
Passenger revenue is expected to total $ 231 billion, up from $ 189 billion in 2020, but well below the $ 607 billion generated in 2019.
Costs: Airlines haven't been able to cut costs as fast as revenue has fallen. We have recently seen worrying cost trends in fuel and infrastructure:
Fuel: The cost of jet kerosene fell to $ 46.6 a barrel in 2020. But with economic activity picking up, fuel costs are rising. Jet kerosene is expected to rise to an average of $ 68.9 / barrel in 2021, approaching the 2019 average price of $ 77 / barrel.
Non-Fuels - Non-fuel unit costs increased 17.5% in 2020 as fixed costs were spread across dramatically reduced capacity. As capacity grows in 2021 and airlines' cost reduction efforts mature, this will be partially reversed with a 15% decrease. “We have seen some worrying signs from our airport and air navigation service providers. Heathrow, for example, is trying to recoup pandemic losses by expanding its regulated cost base. We are in this crisis together with our partners. Recovering losses from each other is not the answer. We all have to tighten our belts. And regulators must act and end monopolistic behavior, ”Walsh said.
Capacity: Capacity is likely to return at a slower rate than demand. That reflects pressure on airlines from debt and fuel prices to only operate services with positive cash flow. Taking cargo and passenger traffic into account, the overall weighted load factor is forecast to increase slightly to 60.3% in 2021. This is considerably below the 66% that we estimate will be the breakeven point for profitability. in 2021, even though the cash costs of operations are falling. covered.
A significant differentiation is emerging between regions with large domestic markets and those that depend primarily on international traffic. Losses are highest in Europe (- $ 22.2 billion) with only 11% of its passenger traffic (RPK) being domestic. Proportionally, losses are much lower in North America (- $ 5 billion) and Asia-Pacific (- $ 10.5 billion) where domestic markets are larger (66% and 45% respectively, before the crisis ).
North American airlines are in the best position to take advantage of the rapid push from vaccination to domestic travel in the US, as well as the strong economy driving demand for air cargo. Losses are down to the lowest of any region at -2.7% of total revenue. In 2020, net losses were -26.8% of total revenues.
European airlines are highly dependent on international passenger revenue, with domestic markets accounting for only 11% of RPKs. Along with testing, vaccines will play an important role in reopening international travel. The uneven launch of the vaccination was already expected to limit the number of international markets that would open this year. A slower vaccination in Europe will also restrict the recovery of the important European and North Atlantic market. Net losses are expected to reduce at the slowest pace among the major regions. Operators in the region are expected to see net losses drop to -23.9% of revenue by 2021 (from -43% in 2020).
Asia-Pacific airlines see 45% of their RPKs generated in domestic markets and will benefit from the strength of the recovery of the Chinese domestic market, as well as the relative importance of air cargo for the region. Net losses are expected to decline from -31.1% of revenue in 2020 to -8.8% of revenue this year.
Middle Eastern airlines will benefit from relatively fast vaccination rates in domestic markets. However, they will be hampered by continued travel restrictions on many of the routes to emerging economies that are served through central Gulf connections. Net losses in 2021 are forecast at -13.8% of revenue (down from -28.9% of revenue in 2020). It will be the third smallest regional loss.
Latin American airlines have the advantage that almost half (48%) of their RPKs are generated in national markets, particularly in the large Brazilian national market. They start from relatively large losses in 2020 and, in some parts of the region, a slow vaccination rate. Revenue from domestic travel growth is forecast to reduce net losses by more than two-thirds this year, to -20.4% of revenue in 2021 from -80.1% in 2020.
African airlines will see slow vaccination rates that will limit international travel. With only 14% of the region's RPKs generated in domestic markets, this will provide a small cushion. Relatively weak economic growth will also limit the scope of stifled demand. However, net losses are expected to fall this year, from -32% of revenue in 2020 to -24%.