The International Air Transport Association (IATA) is currently seeing two likely recovery scenarios from the coronavirus pandemic. The most likely is a V-shaped recovery lasting over the next few years. However, there’s a third recovery projection which would be the worst-case scenario. Let’s investigate further.
The V-shaped recovery
The most optimistic recovery for the air industry is called the V-shaped recovery. Back in March, the International Civil Aviation Organization (ICAO) said that the V-shaped recovery would implicate a potential 90 billion USD loss in gross revenues. In forecasts, the V-shaped recovery would see the passenger demand recover to its pre-crisis levels in 2022.
In this scenario, the Revenue Passenger Mile (RPM) impact would be between 30 and 35% of what the industry had in 2019. But, the RPM would rebound in 2021 with a 40 to 45% growth.
McKinsey & Company published no less than nine different scenarios for the economic impact of the COVID-19 crisis. The more optimistic scenario is where the virus is contained and there’s a strong growth rebound. The second one sees a virus resurgence but there’s a return to the trend of growth.
Sadly, IATA is currently expecting that the V-shaped recovery will not happen. “The industry’s outlook grows darker by the day. The scale of the crisis makes a sharp V-shaped recovery unlikely,” said IATA’s CEO, Alexandre de Juniac.
The U-shaped recovery
“Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market,” said Alexandre de Juniac.
The U-shaped recovery is one where the domestic demand recovers in 2023. Meanwhile, the international demand recovers to 80% of its pre-crisis levels until 2024. This scenario is what the majority of airline executives worldwide are currently expecting.
LATAM Brazil’s CEO, Jerome Cadier, said the demand will take between two and three years to recover. Austrian Airlines is expecting to have its pre-coronavirus numbers back until 2023, at the earliest.
According to Bain & Company, the RPM impact in the U-shaped recovery will be between 50 and 55% for this year. There would be a rebound of 45 to 50% in 2021. The narrowbody RPM’s would recover by the first half of 2023, while the widebody recovery would take place after 2025.
IATA is currently predicting this to be the most likely scenario. The organization just updated its analysis showing an airline passenger revenue drop of 314 billion USD in 2020. This is a 55% decline compared to 2019. Last month, IATA was expecting the loss to be up to $252 billion. And previously it was pegged at $113 billion USD. This shows the extent of the hit the crisis has had on the air industry.
But, could it be worse? Yes, it can.
The L-shaped recovery
This is the worst-case scenario. This is a dooming scenario that is not being considered, in its press releases, by IATA.
In this L-shaped scenario, the recovery would look a little like a fallen L. This means a long downfall followed by a slow recovery. Bain & Company states that the domestic demand would recover to 95% of its pre-crisis levels in 2024. The international demand would recover 70% of its pre-crisis levels by this year.
Additionally, the RPM recovery for the narrowbody and widebody fleets worldwide would take place after 2025. For McKinsey & Company, this scenario would be a mix of both broad failures of public health interventions and ineffective economic interventions. It would mean a pandemic escalation followed by a prolonged downturn without economic recovery or slow long-term growth.
What recovery do you think we’ll see in the aviation industry? Let us know in the comments.