According to the International Air Transport Association (IATA), total passenger revenues for airlines could fall by 55% in 2020, a decline of $314 billion. This comes after a worsening of recession forecasts in April, making the anticipated passenger return slower.
Dramatically declining revenues
IATA has updated its forecasts for the impact on 2020 airline revenue amidst the worsening coronavirus crisis. In late March, it estimated total revenues for 2020 would drop by 44% compared to 2019. On 14th April, it updated this to a 55% drop. The IATA Chief Economist Brian Pearce presented the new analysis in an online presentation.
According to IATA, the situation for aviation has worsened significantly since March. At that time, it had seen a 65% decrease in flights worldwide. It now calculates this to be almost 80%.
Based on its assumptions for the rest of the year, IATA expects global revenue passenger kilometers (RPK) to be down 48% in 2020. This equates (when also considering lower yields) to a 55% revenue drop; a cash total of $314 billion.
IATA does provide some breakdown of how it expects this to play out globally. While the situation is worrying everywhere, the US is expected to be the least badly hit (with an RPK decline of 36%). Europe will see the most significant reduction of 55%. This is not unexpected, given the volume of domestic travel in the US.
A deeper recession now expected
These changed predictions come after re-assessment of the economic impact of coronavirus. In March, IATA was predicting a decline in global GDP of around one percent. This has now been revised to over four percent, twice the drop seen during the 2008 financial crisis.
The effect of just the recession would, according to its analysis, reduce global RPKs by around six percent in the third quarter this year. The additional factors that reduce this further are related to the ongoing global travel restrictions and passenger confidence.
Domestic travel recovers faster than international
IATA assessments also look at when, and how, the sector will come back. These revenue assessments are based on the assumption that domestic aviation markets open up in the third quarter (as lockdowns ease), but international flights are much slower to recover.
This will be of concern to airlines, as earning are generally higher from international flights. IATA showed how, globally, 58% of passengers (in 2019) were domestic, but this only equated to 33% of RPK.
Simple Flying took a look at IATA’s interesting analysis for recovery. This discussed how a ‘U-shaped’ recovery was now more likely, rather than the quick rebound of a ‘V-shaped’ recovery or the worst case ‘L -shaped’ recovery.
The coronavirus situation, and the global economic response, is changing rapidly. IATA has been quick so far to update its views and forecasts for the aviation industry. These figures are updated from just a few weeks ago, and it was only at the end of February that IATA was estimating total losses of just over $20 billion.
It may not all be comforting reading, but it’s useful to us all in understanding how the situation is evolving.