IATA Expects Reduced Losses But Continued Pain In 2021

• Slow vaccination will reduce international travel in Africa

The International Air Transport Association (IATA) expects net airline industry losses of $47.7 billion in 2021 (net profit margin of -10.4%). This is an improvement on the estimated net industry loss of $126.4 billion in 2020 (net profit margin of -33.9%).

Willie Walsh, IATA’s Director General said: “This crisis is longer and deeper than anyone could have expected. Losses will be reduced from 2020, but the pain of the crisis increases. There is optimism in domestic markets where aviation’s hallmark resilience is demonstrated by rebounds in markets without internal travel restrictions. The government imposed travel restrictions, however, continue to dampen the strong underlying demand for international travel. Despite an estimated 2.4 billion people travelling by air in 2021, airlines will burn through a further $81 billion of cash.”

IATA said it urged governments to have plans in place so that no time is lost in restarting the sector when the epidemiological situation allows for a re-opening of borders.

“Most governments have not yet provided clear indications of the benchmarks that they will use to safely give people back their travel freedom, In the meantime, a significant portion of the $3.5 trillion in GDP and 88 million jobs supported by aviation are at risk. Effectively restarting aviation will energize the travel and tourism sectors and the wider economy. With the virus becoming endemic, learning to safely live, work and travel with it is critical. That means governments must turn their focus to risk management to protect livelihoods as well as lives,” Walsh added.

IATA revealed that the Industry losses of this scale imply a cash burn of $81 billion in 2021 on top of $149 billion in 2020. Government financial relief measures and capital markets have been filling this hole in airline balance sheets, preventing widespread bankruptcies. The industry will recover but more government relief measures, particularly in the form of employment support programmes, will be needed this year.

“Owing to government relief measures, cost-cutting, and success in accessing capital markets, some airlines appear able to ride out the storm. Others are less well-cushioned and may need to raise more cash from banks or capital markets. This will add to the industry’s debt burden, which has ballooned by $220 billion to $651 billion. There is a definite role for governments in providing relief measures that ensure critical employees and skills are retained to successfully restart and rebuild the industry,” Walsh added.

For African carriers, IATA says slow vaccination rates will limit international travel as only 14% of the region’s RPKs is generated on domestic markets and this will provide a little cushion. Furthermore, relatively weak economic growth will also limit the extent of pent-up demand. Nonetheless, net losses are expected to fall this year, from -32% of revenues in 2020 to -24%.

IATA revealed that Cargo has outperformed the passenger business throughout the crisis. That trend is expected to continue throughout 2021. Demand for cargo is expected to grow by 13.1% over 2020. This puts the cargo business in positive territory compared to pre-crisis levels -2020 saw a full-year decline of 9.1% compared to 2019-. Total cargo volumes are expected to reach 63.1 million tonnes in 2021. That’s nearly at the pre-crisis peak of 63.5 million tonnes which occurred in 2018.

According to IATA, significant differentiation is emerging between regions with large domestic markets and those relying primarily on international traffic. Losses are highest in Europe -$22.2 billion- with only 11% of its passenger traffic (RPK) being domestic. Proportionately, losses are much smaller in North America (-$5.0 billion) and Asia-Pacific -$10.5 billion- where domestic markets are larger -66% and 45% respectively, pre-crisis-.