IATA’s Outlook Dims for 2020, Sees $314 Billion Revenue Hit

 - April 14, 2020, 9:52 AM

This story is part of AIN's continuing coverage of the impact of the coronavirus on aviation.

The International Air Transport Association has revised upward expected 2020 passenger revenue losses for the world’s airlines due to the Covid-19 pandemic from $252 billion to $314 billion, the group reported Tuesday. Speaking during IATA’s weekly conference call on the effects of the crisis on the air transport industry, chief economist Brian Pearce explained that the assumptions used to arrive at the earlier figure hinged on traffic statistics from the last week of March, when the world’s airlines witnessed roughly a 65 percent decline in capacity. Now, said Pearce, traffic has fallen to some 80 percent and, with expectations of an even more severe recession than previously projected—economists now see a 6 percent drop in global GDP for the second quarter of the year—IATA’s view of the ability of the airline industry to respond in the second half of the year has dimmed considerably.

“Economists have become much more pessimistic about the global economy,” noted Pearce. “Our previous impact assessment was based on the end of March forecast for global economic growth, which at the time was predicting recession but less severe than the global financial crisis [of 2008]. The expectations now are for a very severe economic downturn essentially as much of the world’s economy has been grounded effectively by the social distancing requirements.

“That obviously affects the speed at which air travel will return in the second half of the year because jobs will be lost, confidence damaged, and incomes reduced.”

Another factor, said Pierce, centers on assumptions of relaxations of travel restrictions. Based largely on events in China, the site of the first efforts to reopen airline travel, IATA expects domestic services to return first because of the fear of imported cases of Covid-19. “In passenger number terms, it’s domestic markets that matter, and that’s obviously important for airports,” said Pearce. “For airlines, revenues are more dependent on revenue passenger-kilometers flown, and…domestic represents one-third of revenue passenger kilometers. So obviously the slower opening of international borders is more problematic for the airline industry.”

IATA’s estimates of the effect of the economic downturn alone—and not taking account of travel restrictions and confidence erosion due to Covid-19—suggests an 8 percent decline compared with a year earlier, representing a downturn that would prove twice as deep as the one that occurred during the global financial crisis. “Obviously that slows down the recovery expected in the second half of the year,” said Pearce.

While IATA director general Alexandre de Juniac expressed some optimism about recent moves by European governments to start re-opening their economies, those measures have not included the aviation industry. Individual decisions cannot allow for the restoration of international air services when other markets remain closed, he noted.

“Furthermore, China and South Korea—countries that have been successful in controlling the disease within their own borders—are now doubling down on international travel restrictions because they don’t want to risk importing a second outbreak,” said De Juniac. “I don’t underestimate the challenges that are ahead. The keys to success, however, are well-known in the aviation world—cooperation and harmonization. Successive unilateral actions by states can shut down aviation as we have seen. But unilateral actions cannot restart aviation.  Governments must work with each other and together with the industry.”

IATA plans to hold a series of regional summits with governments starting early next week in an effort to plan a coordinated effort for a resumption of international air services, noted De Juniac.