Outlook for Air Transport and the Airline Industry - Brian Pearce Chief Economist - IATA
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Outlook for Air Transport
and the Airline Industry
Brian Pearce
Chief Economist
#IATAAGM
24 November 2020
1
COVID-19 is the biggest shock to hit aviation since WW2
Global RPKs estimated to have shrunk an average of 66% in 2020
Worldwide passengers kilometers flown (RPKs) annually
10,000
9,000
8,000
7,000
6,000
Billions
5,000
4,000
GFC
3,000
2,000 9-11 COVID-19
1,000
0
1950 1960 1970 1980 1990 2000 2010 2020
#IATAAGM 24 November 2020
2
Government aid has kept airlines on life support
USD173 Bn of aid from governments worldwide so far
Government aid made available to airlines due to COVID-19, by type (USD bn)
Reimbursable / deferral only
Non-reimbursable / waiver/ discount
Loans 58
Wage subsidies 46
Loan guarantees 24
Cash injections,
23
equity financing
Corporate taxes 12
Ticket taxes 10
Fuel taxes 1
Total 173
#IATAAGM 24 November 2020
3Airlines have also raised cash from capital markets
Government aid + capital markets added more than USD220bn to debt
Banks, capital markets, lessors
Government
#IATAAGM 24 November 2020
4Air travel recovery stalling but global economy stronger
Recovering global economy boosting air cargo but not air travel
Growth in the global economy, passenger and cargo km flown
20%
Global industrial
production
0%
% change year-on-year
-20% Global cargo km
flown
-40%
-60% Global passenger km
flown
-80%
-100%
Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20
#IATAAGM 24 November 2020
In fact the weak recovery of air travel has stalled at the start of Q4.
This contrasts with what has been a strong rebound in the global economy and business
confidence. Global industrial production was only 3% down on the year by late summer.
This more ‘V-shaped’ economic recovery has driven a much better performance in the air
cargo sector, where volumes were down just 8% in September.
5When lock-downs end business confidence rebounds
Wider economy revival encouraging for air cargo but not helping travel
Business confidence in manufacturing and services (PMI)
70
EXPANSION China US
60
Net responses, 50=no change
50
Eurozone
40
CONTRACTION
30
20
10
Jan-19 24
#IATAAGM Mar-19 May-19
November 2020 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20
That Restart, at least on international markets, has been prevented by the very large 2nd
wave of COVID-19 in Europe and what is a 3rd wave in the US.
Europe is in renewed economic lock down as a result.
The hoped for control of the virus, ahead of a vaccine, has not happened outside China
and a few other Asian countries.
The Restart in air travel has been disappointingly weak as a result.
6Domestic air travel reviving but not in all markets
China and Russia fully recovered, but limited progress in US & Australia
Growth in passenger km flown on domestic markets
40%
20% Russia
2.7%
0%
% change year-on-year
-2.8%
-20%
China
-40%
-60% US
-65%
-80%
-89.3%
-100% Australia
-120%
Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20
#IATAAGM 24 November 2020
72nd waves hitting air travel in many developed markets
Large rise in COVID cases in Europe leading to renewed lock-downs
New COVID19 cases per day, 7-day moving average
260000 Europe
New COVID19 cases per day, 7-day moving
240000
220000
200000
180000
160000
average
140000 Rest of
120000 world
100000
US
80000
60000
40000
20000
China
0
15-Feb 15-Mar 15-Apr 15-May 15-Jun 15-Jul 15-Aug 15-Sep 15-Oct
#IATAAGM 24 November 2020
That Restart, at least on international markets, has been prevented by the very large 2nd
wave of COVID-19 in Europe and what is a 3rd wave in the US.
Europe is in renewed economic lock down as a result.
The hoped for control of the virus, ahead of a vaccine, has not happened outside China
and a few other Asian countries.
The Restart in air travel has been disappointingly weak as a result.
82nd wave caused reverse in Europe international revival Central-N America market rising but
Latin America shows entry with testing can boost travel
October booking significantly higher if testing rather than quarantine
% change year-on-year in net bookings, 1-15 Oct 2020 vs. 2019
Closed to foreigners Entry with quarantine Entry with test Open
-59% -57%
-70% -69% -68% -67%
-75%
-78%
-81% -81%
-85% -85%
-92%
-98% -98% -98% -97%
Argentina Suriname Paraguay Venezuela Uruguay Chile Panama Peru Costa Nicaragua Colombia Guatemala Brazil Caribbean Ecuador Honduras Mexico
Rica
#IATAAGM 24 November 2020
Testing offers a promising way forward to Restart air travel in the absence of a vaccine, if
governments can be persuaded to use this to replace quarantine requirements.
Bookings during the first 2 weeks of October for a number of Latin American markets
show how the opening of borders with a testing requirement, rather than quarantine, can
significantly boost travel.
10Vaccine news positive but recovery will still take time
Issues with vaccine implementation and the impact of economic damage
Global RPKs departures, billions per year
12 Pre-COVID19 baseline
forecast
New
Passenger departures, billions per year
baseline
10 forecast
Range of
uncertainty
8
6
4
2 2019 level
recovered by
2024
0
2010 2012 2014 2016 2018 2020 2022 2024
#IATAAGM 24 November 2020
Source: IATA/Tourism Economics ‘Air Passenger Forecasts’ October 2020
But even with an effective testing regime in place we are cautious about the extent to
which this can quickly boost air travel.
We assume a vaccine(s) is deployed in the second half of 2021, but it looks likely that
there will be production and distribution challenges that mean it will only be in late 2021
and in 2022 when air travel rises back substantially.
On this basis we don’t expect 2019 levels to be regained until around 2024.
We should also acknowledge the huge amount of uncertainty over virus behavior, vaccine
effectiveness and government responses. The yellow area represents various scenarios
and indicates that the risk to our baseline forecast remains on the downside.
11Costs need to be downsized to match lower revenues
Revenues in 2021 are estimated to be ~50% of pre-crisis expectations
Airline industry revenues, USD billion Pre-COVID-19
1,000 forecast
900
800
700
600
USD billion
500 -50%
400 Passenger revenues
300
200
100
Cargo revenues
0
2016 2017 2018 2019 2020 2021
#IATAAGM 24 November 2020
Given the scale of the passenger revenue collapse, the improvement in cargo does not
change the situation in aggregate.
Revenues are expected to be 50% down on expectations in 2021.
With an urgent need to stop cash burn, costs will need to be downsized by a similar
amount.
Given the semi-fixed nature of many airlines costs that will be a big challenge.
12Asia-Pacific turns around 1st then developed markets
China’s airlines turn cash +ve now, vaccine distribution uneven at first
EBIT margins, region of airline registration
N America Europe Asia Pacific L America Africa Middle East
20%
10%
% of operating revenues
0%
-10%
-20%
-30%
-40%
-50%
2015-19 2020 2021
#IATAAGM 24 November 2020
Given the scale of the passenger revenue collapse, the improvement in cargo does not
change the situation in aggregate.
Revenues are expected to be 50% down on expectations in 2021.
With an urgent need to stop cash burn, costs will need to be downsized by a similar
amount.
Given the semi-fixed nature of many airlines costs that will be a big challenge.
13Losses forecast to be reduced to USD38bn in 2021
That’s after an estimated USD118bn in 2020 but still exceeds GFC loss
Net profit EBIT margin
60 15
40 10
20 5
% of operating revenues
0 0
-20 -5
USD billion
-40 -10
-60 -15
-80 -20
-100 -25
-120 -30
-140 -35
2007 24
#IATAAGM 2008 2009 2010
November 20202011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Given the scale of the passenger revenue collapse, the improvement in cargo does not
change the situation in aggregate.
Revenues are expected to be 50% down on expectations in 2021.
With an urgent need to stop cash burn, costs will need to be downsized by a similar
amount.
Given the semi-fixed nature of many airlines costs that will be a big challenge.
14Airline industry may turn cash positive in late 2021
Vaccine boost to revenues likely in H2 2021 but challenging first half
Airline industry quarterly cash burn forecast
10
0
-10
USD billion
-20
-30
-40
-50
-60
2020Q2 2020Q3 2020Q4 2021Q1 2021Q2 2021Q3 2021Q4
#IATAAGM 24 November 2020
Source: IATA Economics
As a result we expect airlines in aggregate will still be burning through their cash balances
during 2021, certainly the first half.
We know this industry had a cash burn of around $50 billion in 2020 Q2 and financial
results suggest that was only reduced a little in Q3. Next year we are projecting a further
$60-70 billion of cash burn, as airlines struggle to restructure costs to match the halved
revenues the industry faces.
15Some airlines may run out of cash before vaccine boost
Median airline’s cash lasts 8.5 months (end Q1) at 2020H2 cash burn
2020 end June cash+cash equivalents/2020 H2 monthly cash burn
25
20
Months
15
Median airline
10
8.5 months of cash
5
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38
Individual airlines
#IATAAGM 24 November 2020
Source: IATA Economics using data from the Airline Analyst
That projection of continued, albeit reduced cash burn point to a challenging year ahead
for the industry.
There are a number of airlines with very substantial cash ‘war chests’ and the ability to
borrow more if necessary, but many if not the majority can’t.
We looked at the cash and near cash in airline balance sheets as of the end of June and
compared that to the rate of cash burn we forecast for the second half of this year.
That analysis shows that the median (or average) airline would run out of cash after 8-9
months i.e. the end of Q1 2021.
The risk facing the industry is for a substantial number of failures of our medium and
smaller airlines or a substantial increase of government ownership of airlines should they
swap their debt for equity or nationalize.
16Contacts economics@iata.org www.iata.org/economics #IATAAGM 24 November 2020 17
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