“Financially, 2020 will go down as the worst year in the history of aviation,” said Alexandre de Juniac, IATA’s Director General and CEO. “On average, every day of this year will add $230 million to industry losses. It means that—based on an estimate of 2.2 billion passengers for 2020—airlines will lose $37.54 per passenger. That’s why government financial relief was and remains crucial as airlines burn through cash.”
The main driver of the losses is the evaporation of passenger demand as international borders closed, and countries locked down. At the low point in April, global air travel was roughly 95% below 2019 levels. There are indications that traffic is slowly improving. Nonetheless, traffic levels (in revenue passenger kilometers) for 2020 are expected to fall 54.7% compared with 2019. Passenger numbers of 2.2 billion is approximately equal to 2006 levels. Capacity, however, cannot be adjusted quickly enough with a 40.4% decline expected for the year.
Passenger yields will therefore fall an expected 18% as airlines try to encourage people to fly again through price stimulation. Load factors are expected to average 62.7% for 2020, some 20 percentage points below the record high of 82.5% achieved in 2019.
Unfortunately, costs are not falling as fast as demand. Though expenses of $517 billion are 34.9% below 2019 levels, revenues will see a 50% drop. Non-fuel unit costs will rise 14.1%, as fixed costs are spread over fewer passengers. Lower utilization of aircraft and seats because of restrictions will also add to rising costs.
Fuel prices offer some relief. In 2019, jet fuel averaged $77/barrel whereas the forecast average for 2020 is $36.8. Fuel is expected to account for 15% of overall costs (compared with 23.7% in 2019).
Cargo volumes will drop 10.3 million tonnes to 51 million tonnes. However, a severe shortage in cargo capacity due to the unavailability of belly cargo on (grounded) passenger aircraft is expected to push rates up some 30% for the year. This means cargo revenues will reach $110.8 billion in 2020 and contribute approximately 26% to industry revenues--up from 12% in 2019.
With open borders and rising demand in 2021, the industry is expected to cut its losses to $15.8 billion. Total passenger numbers are expected to rebound to 3.38 billion and overall revenues should reach $598, still 29% below 2019’s $838 billion.
Unit costs are expected to fall due to higher demand, but jet fuel prices are anticipated to average close to $52. Cargo’s enlarged footprint in the air transport industry will reduce slightly to about 23% of total industry revenues, but cargo revenues should reach a record $138 billion.
“Airlines will still be financially fragile in 2021,” said de Juniac. “Passenger revenues will be more than one-third smaller than in 2019. And airlines are expected to lose about $5 for every passenger carried. The cut in losses will come from re-opened borders leading to increased volumes of travelers. Strong cargo operations and comparatively low fuel prices will also give the industry a boost. Competition among airlines will no doubt be even more intense. That will translate into strong incentives for travelers to take to the skies again. The challenge for 2022 will be turning the reduced losses of 2021 into the profits that airlines will need to pay off their debts from this terrible crisis.”