Aviation Plans to Bounce Back

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A financial report by the. International Air Transport Association (IATA) released its financial outlook for the global air transport industry showing that airlines are expected to lose US$84.3 billion in 2020 for a net profit margin of -20.1%. Revenues will fall 50% to US$419 billion from US$838 billion in 2019. In 2021, losses are expected to be cut to US$15.8 billion as revenues rise to US$598 billion.

The aviation industry is already badly hit due to Covid-19 which some flights globally grounded and 97% of airports globally closed. Though some countries are opening their airports for flights to resume, there are still lots of restriction before flying could be normal. These measures include checking passengers temperatures, sanitizing the whole plane, sanitizing passengers and their luggage’s before and after boarding.

All these costs will be shifted down to the customers who always bear the brunt of price changes in all sectors. 2020 though not ended has already gone down as the worst year for the aviation sector.

On average, every day of this year will add US$230 million to industry losses. In total that’s a loss of US$84.3 billion. It means that—based on an estimate of 2.2 billion passengers this year—airlines will lose US$37.54 per passenger. That’s why government financial relief was and remains crucial as airlines try to bounce back.

Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us. A key to the recovery is a universal implementation of the re-start measures agreed through the International Civil Aviation Organization (ICAO) to keep passengers and crew safe. And, with the help of effective contact tracing, these measures should give governments the confidence to open borders without quarantine measures. That’s an important part of the economic recovery because about 10% of the world’s GDP is from tourism and much of that depends on air travel. Getting people safely flying again will be a powerful economic boost.

 Post Covid-19 Aviation Plans to Bounce Back

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 to 23.7% in 2019).

 Passenger demand

Evaporated as international borders closed and countries locked down to prevent the spread of the virus. This is the biggest driver of industry losses. 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 Kilometer) for 2020 are expected to fall by 54.7% compared to 2019. Passenger numbers will roughly halve to 2.25 billion, approximately equal to 2006 levels. Capacity, however, cannot be adjusted quickly enough with a 40.4% decline expected for the year.

Passenger revenues

Are expected to fall to $241 billion (down from $612 billion in 2019). This is greater than the fall in demand, reflecting an expected 18% fall in passenger yields 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.

Cargo

Is one bright spot. Compared to 2019, overall freight tonnes carried are expected to drop by 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 by some 30% for the year. Cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4 billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26%–up from 12% in 2019.

Costs

Are not falling, as fast as demand. Total expenses of $517 billion are 34.9% below 2019 levels but revenues will see a 50% drop. Non-fuel unit costs will rise sharply by 14.1%, as fixed costs are spread over fewer passengers. Lower utilization of aircraft and seats as a result of restrictions will also add to rising costs.

 

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