Airlines Will Lose $100 Billion Through 2021 Due To Coronavirus: IATA

Even the optimistic scenario shared Tuesday by the global airline industry group IATA isn’t good news. Without factoring in the possibility that a second wave of the coronavirus pandemic might lead to further air service restrictions, airlines now face losses of $84 billion in 2020, IATA projects, with further losses of $15 billion in 2021.

The path to recovery is all uphill. Passenger demand will be reduced, with inadequate cargo demand to supplement passenger revenue losses. Airlines also now face a high debt burden, and competitive pressure on fares will drain yields. High fixed costs guarantee losses.

IATA’s chief economist, Brian Pearce, projected a “V” recovery pattern for the industry on the working assumption that there is no large second wave of the pandemic and that adequate testing will be available, even if a vaccine is not available. Even so, airlines will be deep in negative territory next year.

Passengers may be eager to get out and fly, but they are expected to do so in phases. Airlines are primarily counting on domestic travel, with some venturing out to nearby countries during the summer months of June and July, most of these within Europe and within Asia. Airlines do not expect long-haul travel to resume in any significant volume until the fourth quarter of this year.

“We’re starting to see that [passenger traffic return], with bilateral arrangements internationally with neighboring countries,” Pearce said. “But we’re expecting long-haul markets to take some time to open. And, obviously, there’s also the impact of the extraordinarily deep economic recession in the second quarter.”

This phased re-opening will translate into passenger demand (defined as RPKs) reduced by 36% when compared to January 2020 levels.

Airlines are projecting a continued rise in passenger and cargo demand for 2021, but still below 2019. Passenger demand is expected to recover by 55% compared to 2020, but that will still be 29% below 2019 levels. Cargo demand will increase by 25% compared to 2020, but will still be 3% below 2019 levels.

Debt accumulated during the crisis will put significant financial pressure on airlines, rising to unsustainable levels 16 times EBITDAR in 2021.

“Airlines are moving into this restart period with very substantial debt burdens,” Pearce said. “Airlines are really going to be wanting cash to service that debt.”

But the cash may not come from operations, particularly with low-fares introduced to stimulate demand. Profit margins look grim for airlines around the world, even in leading markets which previously accounted for most airline profitability—led by airlines in North America, Europe and Asia Pacific.

The significance of losses across the globe should not be overlooked. Only 30 airlines around the world were responsible for much of the airline industry gains recorded prior to the crisis. The balance have barely been profitable or have been operating at a loss. However, with the coronavirus crisis, even those 30 airlines that led the pack on profitability are now operating in vulnerable conditions. For this reason, they may not be able to move on market opportunities created when competitors fail in a particular region.

An example of this would be the Latin American market, where the failure of both Avianca and LATAM may have created an opportunity for airlines based in North America were it not for the weak position of those North American carriers.

This weakening of operators around the world will not just affect the airline industry. It will have long-term impact on the global economy. If cities lose air connectivity, they lose an important source of tourism and an important resource supporting trade and the transport of local goods.