Monday, September 26, 2022

Global airlines hopeful of recovery -cut losses in 2022 by 78pc

The International Air Transport Association (IATA) has projected a sharp reduction in industry losses for next year which is likely to narrow down to $11.6 billion in 2022 from $51.8 billion this year as a multi-speed recovery from the coronavirus crisis gets under way. 

The industry’s main trade body, however revised up the financial toll inflicted by the pandemic in 2020 and 2021.

The losses for 2021 were revised up from $47.7 billion estimated in April. IATA also revised up losses for 2020 to $137.7 billion from $126.4 billion estimated earlier.

While airlines across all regions are expected to perform better, those in North America are forecast to return to profit next year.

However, IATA cautioned that 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 re-open to international traffic. 

Globally, the demand (measured in RPKs) is expected to stand at 40 per cent of 2019 levels for 2021, rising to 61 per cent in 2022.

Total passenger numbers are expected to reach 2.3 billion in 2021. This will grow to 3.4 billion in 2022 which is similar to 2014 levels and significantly below the 4.5 billion travelers of 2019.

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 for 2022.

“We are past the deepest point of the crisis,” IATA Director General Willie Walsh told the group’s annual meeting. “While serious issues remain, the path to recovery is coming into view.”

“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,” stated Walsh.

“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,” he added.

Yet, IATA urged governments to keep wage support measures and slot wavers in place until international traffic recovers.

It expects international travel demand to double next year and reach 44 per cent of the 2019 levels. However, the vaccination rate as well as the lifting of government-imposed border restrictions will determine the pace of recovery.

“People are being held back from international travel by restrictions, uncertainty and complexity,” said Walsh.

According to him the air cargo business is performing well, and domestic travel will near pre-crisis levels in 2022. The challenge is international markets which remain severely depressed as government-imposed restrictions continue.  

“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.

He pointed out that 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 should be priorities for governments. 

“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,” he stated. 

“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,” remarked Walsh.

“And regulatory alleviations—like continued slot wavers while international traffic recovers—will be needed well into 2022,” he added.

In 2021 overall demand 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 be just 67.1 per cent, a level not seen since 1994.

In 2022 overall demand is expected to reach 61 per cent of pre-crisis (2019) levels. Capacity is expected to continue to increase faster than demand, reaching 67 per cent of pre-crisis levels for 2022. Average passenger load factors are expected to recover to 75.1 per cent, a level exceeded in every year since 2005 until this crisis hit, and far below the 82.6 per cent record set in 2019.

According to Walsh, the 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 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 (2019) levels, while next year, it is expected to reach 93 per cent of pre-crisis (2019) levels.

International demand is the slowest to recover owing to continuing restrictions on the freedom of movement across borders, quarantine measures and traveler uncertainty, he added.

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