Hard, challenging recovery await air travel as airspace reopens
Ahead of the air travel restart across the globe, the International Air Transport Association (IATA) has warned that a hard and challenging recovery await aviation across several levels.
The body, which is the clearing house for over 280 global airlines, said without support from governments, the recovery might be harder. Already, IATA released its financial outlook for the global air transport industry showing that airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1 per cent. Revenues will fall by 50 per cent to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.
Airlines entered 2020 in relatively good financial shape. After a decade of profits, debt levels were relatively low and put at $430 billion, which is roughly half annual revenue.
Vital financial relief measures by governments have kept airlines from going bankrupt but have ballooned debt by $120 billion to $550 billion, which is about 92 per cent of expected revenues in 2021.
IATA advised that further relief measures should be focused on helping airlines to generate more working capital and stimulating demand rather than further expanding debt.
In the area of operational efficiencies, the global measures agreed for the industry re-start, for the period that they are implemented, will significantly change operational parameters. For example, physical distancing during embarkation/disembarking, more deep cleaning, and increased cabin check will all add time to operations which will decrease overall aircraft utilisation.
The depth and duration of the recession to come will significantly impact business and consumer confidence. Pent-up demand is likely to drive an initial uptick in travel numbers but sustaining that is likely to require price stimulus and that will put pressure on profits.
Travel patterns are likely to shift. The gradual opening up of air travel is likely to be progressive, starting with domestic markets, followed by regional and, lastly, international.
Research suggests that some 60 per cent of travelers will be eager to recommence travel within a few months of the pandemic coming under control. The same research also indicates that an even greater percentage of potential travelers until their personal financial situation stabilises (69 per cent) or if quarantine measures are in place (over 80 per cent).
IATA’s Director General and CEO, Alexandre de Juniac, said financially, 2020 would go down as the worst year in the history of aviation. However, “People will want to fly again, provided they have confidence in their personal financial situation and the measures taken to keep travelers safe. There is no tried and true playbook for a recovery from COVID-19 but the ICAO Takeoff re-start plan outlines globally harmonised. It is important that the industry and governments follow it so that travellers will have the maximum reassurance about their safety.
“That will be a good start. And depending on how the pandemic evolves, knowledge of the virus deepens, or science improves, industry and governments will be better prepared for a globally coordinated response. That includes the potential removal of measures when it is safe. That will give airlines some breathing room to rebuild demand and repair damaged balance sheets,” de Juniac said.
Aviation consultant, Chris Aligbe, said it would take awhile for the sector to recover, and the longer it takes, the more difficult it is for all stakeholders, including the operators and service providers.
Aligbe noted that all the government’s parastatals depended on the passengers and the majority of the revenue was from the foreign airlines that had all been shut out because of coronavirus. He said the government, as in other parts of the world, would have to support both the airlines and regulatory agencies, because they are mutually interdependent.
He said: “If the airlines do not pick up to the level of pre-COVID-19, then the revenue will not come to the agencies too. More so, we don’t expect normalcy to return (to air travel) until about 18 months. Because, in the absence of vaccines, travellers will still be afraid of infection, there will be restrictions in some countries, and then due of economic recession, the lack of funds will prevent people from travelling like before. This will have impact on airports and the agencies,” Aligbe said.