How long will it take for airline industries to recover?
The new COVID-19 vaccine is now available worldwide, which gives hope for the airlines to be able to shortly return to their regular operations. However, the analysis of the International Air Transport Association (IATA)forecast that, regardless of the COVID-19 vaccines and testing procedures being available, the demand for airline travel would take several years to recover. IATA predicts that the airlines might not return to their normal operations until the year 2024.
Why is the situation in 2021 still similar to 2020?
Despite the availability of COVID-19 vaccinations, the governments worldwide still have tight travel restrictions. It might be due to the appearance of the new strains of COVID-19 and lack in implementation of rapid testing by the governments.
According to IATA’s financial analysis, the passenger travel revenues have slightly increased from350 billion in the year 2020, to the predicted 450 billion in the year 2021. However, revenues predicted for the year 2021 dropped by 50% compared to thePre-COVID-19 forecast for the year 2021, which was expected make around 900billion USD.
Financial support from the government
The aviation industry is still losing money every quarter. As such, in year 2020, the industry was losing 50 billion USD per quarter. This year, it is a further significant reduction of more than 50billion USD per quarter.
The government has made available to the aviation industry 191 billion USD to fill the cash gaps and help the aviation industries survive. The biggest proportion of government aid was in the form of loans, cash injections, and equity financing. Of this contribution, 53% needs to be returned to the government. Therefore, companies will have to use any leftover cash flow to repay the government debt. Other sources of borrowing are banks, capital markets and lessors. A total of about 130 billion was borrowed from the non-government sources in the year 2020. IATA estimated the total debt of money owned by the industry up to date is around 651 billion dollars.
Increase in cargo revenues
Alexandre de Juniac, the Director-General, and CEO of IATA, stated that the cash burn will most likely continue at least till the end of year 2021, based on the latest IATA data update. With increase in number of passenger travel in 2021, the losses will be reduced to $ 38 billion, the analysis say. “We need to get borders safely re-opened without quarantine so that people will fly again. And with airlines expected to bleed cash at least until the fourth quarter of 2021 there is no time to lose,” stated de Juniac.
The borders are assumed to reopen by mid-2021 with the implementation of the new COVID-19 vaccine and mass testing. IATA expects that revenues should grow to $459 billion in 2021. This increase would be a significant improvement of 131 billion USD in comparison to the year2020, but will still below the $838 billion achieved in 2019.
On the positive side, cargo revenues have slightly increased from 95 billion in 2019 to above 100 billion in 2020. This area has a potential for continuous growth, which will bring some extra cash to the airline industries. Currently, airlines that have large cargo operations are performing much better than airlines that rely solely on passenger flights. The Chinese airlines use many cargo operations and will be able to recover faster than airlines in other countries, as the number of cargo operations increases overtime. Successful implementation of virus testing and vaccination is needed in China to increase cargo transport.
Airlines with domestic flights are doing better than international flights.
IATA analysis has shown that passengers prefer to use short-haul travel rather than long-haul, because it is deemed safer. This means that in 2021, airlines will be performing better in the domestic travel rather than international.
Airlines in China and Russia have fully recovered in domestic air travel. Airlines in North America will benefit from earlier recovery in the U.S., which is the largest domestic market in the world. IATA forecasts that Europe will take longer to recover than the U.S., which has not restructured itself after the second wave of the pandemic in 2020.
According to Chris Goater, the Assistant Director for Corporate Communications at IATA, There is need for better tracking and testing at the airports, and more widespread vaccination programs. The recovery in air travel is going to be slow, most likely it willfully recover in year 2024, as the vaccines are unlikely to be distributed widely, even in the richer countries.
Conclusion
IATA predicted that the airlines will still be burning their cash advances in year 2021 and 2022, as they are trying to restructure to decrease costs. IATA predicted that the losses in year 2021 will be reduced to USD38 bn. This amount is in comparison to USD118bn lost in year 2020, which is a significant improvement. Regardless of the slow recovery process, there is consensus among sources like IATA and Airbus, that full recovery of the airlines is expected to take place in year 2024-2025.The growth rate will be expected to increase thanks to the widespread vaccination and the ease in travel restrictions.
References
https://www.iata.org/en/events/wfs-webcasts/
https://www.aerotime.aero/26845-aviation-recovery-forecast-analysis#:~:text=IATA%20forecasts%20that%20the%20aviation,by%20the%20end%20of%202020
