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‘Border reopening, financial support to save airlines from collapse’

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• We’re in worst year in history of aviation business, says IATA
World airlines yesterday rallied governments to reopen international borders, and give financial bailouts to save economies and airlines from collapse.

The airlines, under the aegis of the International Air Transport Association (IATA), said the measures would hasten the recovery and slow current losses that are plundering the airlines out of business.

IATA, Tuesday, released its financial outlook for the global air transport industry showing that airlines are expected to lose $84.3billion in 2020 for a net profit margin of -20.1 per cent. Revenues will fall by 50 per cent to $419billion from $838billion in 2019. In 2021, losses are expected to be cut to $15.8billion as revenues rise to $598billion.

IATA’s Director General and CEO, Alexandre de Juniac, said financially, 2020 would go down as the worst year in the history of aviation.

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

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He said provided there were no second and more damaging wave of COVID-19, the worst of the collapse in traffic was likely behind the industry.

“A key to the recovery is universal implementation of the re-start measures agreed through the International Civil Aviation Organisation (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 per cent 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,” de Juniac said.

The global outlook for 2020 showed that 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 per cent 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 per cent 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 per cent decline expected for the year.

Passenger revenues are expected to fall to $241billion, down from $612billion in 2019. This is greater than the fall in demand, reflecting an expected 18 per cent fall in passenger yields as airlines try to encourage people to fly again through price stimulation. Load factors are expected to average 62.7 per cent for 2020, some 20 percentage points below the record high of 82.5 per cent achieved in 2019.

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

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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 per cent of overall costs (compared to 23.7 per cent in 2019).

Cargo is the 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 per cent for the year.

Cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26 per cent—up from 12 per cent in 2019.

“Airlines will still be financially fragile in 2021. 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 reduced losses of 2021 into the profits that airlines will need to pay off their debts from this terrible crisis,” said de Juniac.

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