Tuesday, October 26, 2021
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Airlines to cut losses to $52B in 2021 on cargo, domestic travel demand

  • Net industry losses are expected to reduce to $11.6 billion in 2022 after a $51.8 billion loss in 2021 and a $137.7 billion loss in 2020
  • Total industry losses in 2020-2022 are expected to reach $201 billion
  • Travel demand is expected to stand at 40% of 2019 levels for 2021, rising to 61% in 2022
  • Robust demand for air cargo is expected to continue with 2021 demand at 7.9% above 2019 levels, growing to 13.2% above 2019 levels for 2022

The global airline industry is expected to cut its net loss to US$51.8 billion in 2021, a large reduction from its $137.7 billion loss in 2020, as airlines trim costs and adapt to pandemic-induced new realities to survive, according to the International Air Transport Association (IATA).

In 2022, the industry is seen to further cut its losses to $11.6 billion, bringing the industry’s total losses over the 2020-2022 period to a massive $201 billion, IATA said in its October 4 financial outlook for the industry.

IATA’s director general Willie Walsh said the sector is seeing improvements in finances. “We expect 2021 losses to be nearly $52 billion—cut dramatically from the $138 billion lost in 2020. Losses will further reduce in 2022—to about $12 billion. In total, the COVID-19 crisis will cost aviation $201 billion in losses before we return to profitability in 2023.”

“We are past the deepest point of the crisis. While serious issues remain, the path to recovery is coming into view,” he added.

Market performance

Among the three markets, the air cargo business is performing well, while domestic travel will near pre-crisis levels in 2022. The international markets remain severely depressed as government-imposed restrictions continue, IATA said.

The report said the robust demand for air cargo is expected to continue as companies continue to re-stock. The World Trade Organization forecasts world trade to grow at 9.5% in 2021 and 5.6% in 2022.

Demand for air cargo is expected to grow at 7.9% above 2019 (pre-pandemic) levels this year, and to rise to 13.2% above 2019 levels for 2022.

Meanwhile, overall travel demand in 2021 is expected to reach 40% of pre-crisis levels. The average passenger load factor in 2021 is expected to be just 67.1%, a level not seen since 1994. In 2022 overall demand is expected to reach 61% of pre-crisis levels. Average passenger load factors are expected to recover to 75.1%, a level exceeded in every year since 2005 until this crisis hit, and far below the 82.6% record set in 2019.

Domestic passenger demand, with fewer restrictions in most countries, is driving the recovery. In 2021 domestic demand is expected to reach 73% of pre-crisis levels, and in 2022 is expected to reach 93%.

International travel demand is the slowest to recover owing to continuing restrictions on the freedom of movement across borders, quarantine measures and traveler uncertainty. In 2021 international demand is expected to reach 22% of pre-crisis levels and in 2022 international demand should reach 44% of 2019 levels.

Revenues forecasts

Overall revenues in 2021 are expected to grow by 26.7% compared to 2020 to $472 billion. Further growth of 39.3% in 2022 will see industry revenues rise to $658 billion.

Cargo revenues are expected to rise to a record $175 billion in 2021 with a similar $169 billion expected in 2022. Cargo yields are expected to grow by 15% in 2021 but decline by 8% in 2022.

The passenger business will contribute $227 billion to industry revenues in 2021, rising to $378 billion in 2022. Passenger yields declined each year between 2012 and 2020. In 2021 yields are expected to grow by 2.0% and a further 10% in 2022.

Regional outlook

All regions will improve their collective financial performance compared to 2020, IATA predicts. The strongest performing region is North America, which is expected to see a $5.5 billion loss in 2021 transform to a $9.9 billion profit in 2022. All other regions will see reduced losses in 2022 compared to 2021.

European carriers will see their losses cut from $20.9 billion in 2021 to $9.2 billion in 2022. Long-haul demand, however, will significantly lag behind the recovery in intra-European travel.

Asia-Pacific carriers are expected to see losses diminish from $11.2 billion in 2021 to $2.4 billion in 2022.

“The region continues to suffer some of the most draconian travel restrictions. While there has been some alleviation in restrictions, significant improvements in international markets are not expected until later in 2022,” IATA said.

Reduced losses in Asia-Pacific are expected to be achieved on the back of large and largely open domestic markets, not least of which is China. The region’s carriers are also benefitting disproportionately from the strength of air cargo markets in which they are dominant, it added.

Latin American carriers will see losses cut from $5.6 billion this year to $3.7 billion in 2022. Significant restructuring costs as the region’s carriers adjust to the new business realities will weigh on financial performance, keeping the region in a collective loss.

Middle Eastern carriers will see very limited improvement in their financial performance from a $6.8 billion loss in 2021 to a $4.6 billion loss in 2022. Without large domestic markets, the region’s major carriers rely significantly on connecting traffic, especially to Asia-Pacific which has been slow to reopen to international traffic.

African carriers will see a very slow pace of recovery in financial performance from a $1.9 billion loss in 2021 to a $1.5 billion loss in 2022. The slight improvement is built on the expectation of some recovery in intra-Africa travel and travel to some tourist destination with relatively higher vaccination rates.

Photo by @shawnanggg on Unsplash

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