The International Air Transport Association (IATA) today presented its revised outlook for the airline industry. As expected, it’s a pretty bleak synopsis, with a net loss of $118 billion forecast for 2020. However, the association believes that things could look up in 2021, with a ‘vaccine bump’ expected during the fourth quarter, although it warns that some airlines may not survive to see this recovery.
Airlines lost $66 per passenger in 2020
The unrelenting crisis of 2020 has had a devastating impact on the aviation industry. The International Air Transport Association (IATA) previously projected losses of $84.3 billion in 2020, but today revised that loss again. It is now predicting a total net loss of $118.5 billion for the year.
Director general of IATA, Alexandre de Juniac, noted,
“The history books will record 2020 as the industry’s worst financial year, bar none. Airlines cut expenses by an average of a billion dollars a day over 2020 and will still rack-up unprecedented losses. Were it not for the $173 billion in financial support by governments we would have seen bankruptcies on a massive scale.”
Over the course of 2020, IATA noted that airlines have done a sterling job of cutting costs, driving down expenses by some 45.8%. However, amid revenue reductions of more than 60%, the cash burn continues. The association predicts that every passenger flown in 2020 will have lost the airline $66.
Improvements in 2021 with a vaccine ‘bump’
IATA’s Chief Economist Brian Pearce presented a better outlook for 2021, although still with a historical loss expected. The progress being made on vaccines has given IATA reason to be optimistic, projecting a ‘bump’ in air travel demand by at least the fourth quarter of next year.
Overall, losses in 2021 are expected to be some $38.7 billion, with cash burn reducing as more passengers begin to fly once more. This is based on the assumption that, by mid-2021, the vaccine will have become more widely available or that widespread testing will be in place. IATA believes that these measures will lead to opening of borders and an increase of a billion passengers over the course of the year.
The impact of increased testing and vaccine availability is predicted to have the biggest bump in the fourth quarter of 2021. By then, IATA says that airlines could stop burning cash, and some could even become cash positive by the end of the year.
Some might not make it that far
Despite some limited optimism for 2021, airlines are not out of the woods yet. Analysis by IATA shows that, on average, airlines had some 8.5 months of cash liquidity left, given the cash burn rate calculated in the second half of 2020. Some had significantly more than that, but there is a long tail of airlines with very much less than that too.
With a very challenging first half of the year predicted, IATA warns that we could yet see some airlines fail. With a harsh winter ahead, IATA is hoping governments will step up again to sustain their air carriers, but in a way that does not add to the burgeoning debt. De Juniac added,
“Bridging airlines to the recovery is one of the most important investments that governments can make. It will save jobs and kick-start the recovery in the travel and tourism sector which accounts for 10% of global GDP.”