BusinessAssessing Airline Industry’s $201bn Loss In 2 Years

Assessing Airline Industry’s $201bn Loss In 2 Years

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October 10, (THEWILL) – ANTHONY AWUNOR discusses the latest outlook for the airline industry, focusing on African carriers

The International Air Transport Association (IATA) released its latest outlook on the financial performance of the airline industry, showing improved results amid the COVID-19 pandemic.

The report was announced to the public during association’s annual general meeting (AGM) in Boston, USA.

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The outlook, among other issues, predicts a slow recovery pace for African airlines from a $1.9 billion loss in 2021 to a $1.5 billion loss in 2022.

According to the report, low vaccination rates across the continent are expected to severely dampen demand throughout 2022, while the slight improvement is built on the expectation of some recovery in intra-Africa travel and travel to tourist destinations with relatively high vaccination rates.

A breakdown of the statistics shows that net industry losses are expected to reduce to $11.6 billion in 2022, after a $51.8 billion loss in 2021 (worse than the $47.7 billion loss estimated in April). The 2020 net loss estimates have been revised to $137.7 billion (from $126.4 billion), meaning the total industry losses in 2020-2022 are expected to reach $201 billion.

Other indicators show that demand is expected to stand at 40 per cent of 2019 levels in 2021, rising to 61 per cent in 2022, while total passenger numbers are expected to reach 2.3 billion in 2021. This will grow to 3.4 billion in 2022, similar to 2014 levels and significantly below the 4.5 billion travelers of 2019.

Similarly, robust demand for air cargo is expected to continue with 2021 demand at 7.9 per cent above 2019 levels, growing to 13.2 per cent above 2019 levels in 2022.

Commenting, IATA’s director-general, Willie Walsh, said, “The magnitude of the COVID-19 crisis for airlines is enormous. Over the 2020-2022 period, total losses could top $200 billion. To survive, airlines have dramatically cut costs and adapted their business to whatever opportunities were available. That will see the $137.7 billion loss of 2020 reduce to $52 billion this year. And that will further reduce to $12 billion in 2022. We are well past the deepest point of the crisis. While serious issues remain, the path to recovery is coming into view. Aviation is demonstrating its resilience yet again.

“People have not lost their desire to travel as we see in solid domestic market resilience. But they are being held back from international travel by restrictions, uncertainty and complexity.

“More governments are seeing vaccinations as a way out of this crisis. We fully agree that vaccinated people should not have their freedom of movement limited in any way. In fact, the freedom to travel is a good incentive for more people to be vaccinated. Governments must work together and do everything in their power to ensure that vaccines are available to anybody who wants them,” said Walsh.

IATA further advised that governments should prioritise re-establishing global connectivity, the 11.3 million jobs (pre-COVID-19) in the aviation industry, and the $3.5 trillion of GDP associated with travel and tourism.

“Aviation is resilient and resourceful, but the scale of this crisis needs solutions that only governments can provide. Financial support was a lifeline for many airlines during the crisis. Much of that, approximately $110 billion, is in the form of support that needs to be paid back.

“Combined with commercial borrowing, the industry is now highly leveraged. We don’t want handouts, but wage support measures to retain critical skills may be necessary for some airlines until governments enable international travel at scale. And regulatory alleviations—like continued slot wavers while international traffic recovers—will be needed well into 2022,” Walsh added.

Proffering solutions and calling for collaborative efforts, the IATA advised that the International Civil Aviation Organisation (ICAO) must lead governments in a global approach that has always been successful at driving change in the industry. In addition, governments must set policies that support carbon-reducing innovation, sustainable aviation fuel (SAF) production, and the carbon offsetting and reduction scheme for international aviation (CORSIA). Furthermore, fuel producers need to bring large-scale, cost-competitive SAF to the market while avoiding a patchwork of environment taxes.

Airports must ensure SAF availability at no additional cost, compared to jet fuel. Moreover, governments and Air Navigation Service Providers (ANSPs must eliminate inefficiencies in air traffic management, all inexcusable even without a sustainability mandate, while aircraft and engine manufacturers must produce radically more efficient airframes and propulsion technologies.

Global demand is steadily recovering. For instance, overall demand in 2021 is expected to reach 40 per cent of pre-crisis (2019) levels. Capacity is expected to increase faster than demand growth, reaching 50 per cent of pre-crisis levels for 2021.

The average passenger load factor in 2021 is expected to rise to 67.1 per cent, a level not seen since 1994.

In 2022, overall demand is expected to reach 61 per cent of pre-crisis levels. Capacity is expected to increase faster than demand, reaching 67 per cent of pre-crisis levels in 2022. As a result, average passenger load factors are expected to recover to 75.1 per cent, a level exceeded every year since 2005 until the pandemic hit, but far below the 82.6 per cent record set in 2019.

Domestic demand, with fewer restrictions in most countries, is driving the recovery. Global GDP is expected to grow by 5.8 per cent in 2021 and a further 4.1 per cent in 2022. Additionally, accumulated consumer savings (worth 10-20 per cent of the GDP in some countries) is supporting the alleviation of pent-up demand in unrestricted domestic markets.

In 2021, domestic demand is expected to reach 73 per cent of pre-crisis levels, 93 per cent in 2022. International demand is the slowest to recover owing to continuing restrictions on the freedom of movement across borders, quarantine measures and travellers’ uncertainty.

In 2021, international demand is expected to reach 22 per cent of pre-crisis levels, 44 per cent in 2022.

Cargo demand is strong as companies continue to re-stock. The World Trade Organisation (WTO) predicts global trade would grow by 9.5 per cent in 2021 and 5.6 per cent in 2022.

In 2021, cargo demand is expected to exceed pre-crisis levels by 8 per cent and 13 per cent in 2022.

As for vaccinations, vaccines are proving to be key drivers of government relaxation of border control measures. Quick progress, with some exceptions, of vaccine distribution in developed economies is progressively giving governments the confidence to re-open borders and people the confidence to travel. However, the parts of the world with slower vaccine distribution (developing economies and some developed economies in the Asia Pacific) will take longer to see an industry recovery.

About the Author

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Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.

Anthony Awunor, THEWILLhttps://thewillnews.com
Anthony Awunor, is a business correspondent who holds a Bachelor of Arts Degree in Linguistics (UNILAG). He is also an alumnus of the Nigerian College of Aviation Technology (NCAT), Zaria Kaduna State. He lives in Lagos.

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