In keeping with his motto “Stay strong. We will get through this crisis and keep the world connected,” the International Air Transport Association (IATA) director-general Alexandre de Juniac did not want to sound too pessimistic when briefing media earlier this month on the recovery prospects of the industry. Yet, his message was gloomy. “This crisis could have a very long shadow. Passengers are telling us that it will take time before they return to their old travel habits. Many airlines are not planning for demand to return to 2019 levels until 2023 or 2024,” he warned, as he shared the results of a survey of leisure and business travelers in 11 countries, conducted in February, April, and June on behalf of IATA. Eighty-four percent of passengers—or more than 8 out of 10— surveyed in June are afraid to travel until Covid-19 is contained, up from 74 percent in February, and just 45 percent said that they will travel again in the first months after the pandemic subsides. In early April, 61 percent said that they would. About two-thirds see less travel in their future—be it for vacation, visiting friends/relatives, or business.
Research from global consultancy ICF echoes IATA’s findings. Its surveys of aviation sector participants and travelers from across the world conducted in late March/early April and in late May/early June show that views on the recovery have become markedly more pessimistic. Industry stakeholders expect a much slower recovery to pre-crisis activity levels. Where in late March/early April most anticipated the recovery to take six to 12 months, in late May/early June the majority of respondents (56 percent) put the recovery timeframe at more than two years. Within that category, 28 percent of respondents answered between two and three years, 24 percent answered between three and four years, and 4 percent expected the recovery to take longer than four years. As for consumers, regardless of location or reason for traveling, almost everyone (95 percent) expressed different attitudes about traveling in the wake of the Covid-19 pandemic. “It is clear that the road to recovery is not going to be smooth—or rapid,” ICF’s consultants concluded.
Worst Year in Aviation History
For sure 2020 is set to become a dismal year for airlines financially, as the pandemic and relating travel restrictions or bans, border closures, and quarantines bring an abrupt end to a decade of steady profitability. Globally, airlines can expect to lose $84.3 billion this year, for a negative net profit margin of 20.1 percent, according to IATA’s latest outlook, released in early June. IATA expects revenues to fall 50 percent, from $838 billion in 2019 to $419 billion this year. Passenger revenues will likely collapse to $241 billion, about a third of last year’s level. Passenger numbers will roughly halve to 2.25 billion, roughly equal to 2006 levels, which would equate to an average net loss of $37.54 per passenger. During the height of the financial crisis, in 2008, operators incurred an average loss of $10.49 per passenger. “Financially, 2020 will go down as the worst year in the history of aviation,” commented de Juniac. “On average, every day of this year will add $230 million to industry losses.”
IATA’s projections assume no second wave of Covid-19 cases and thus end-of-year figures could prove worse owing to the continued rise of the number of infections—from 5.9 million reported cases on May 31 to 12.8 million reported cases on July 13, according to World Health Organization (WHO) data. “There is a lot to be concerned about,” stressed WHO director-general Tedros Adhanom Ghebreyesus during a July 13 media briefing. “The virus remains public enemy number one, but the actions of many governments and people do not reflect this,” he said, warning that if people don't follow basics the pandemic will get “worse and worse and worse.”
Europe Upholds Fractured Approach to Travel Restrictions
Several countries, regions, or cities that overcame the first peak of the outbreak and eased lockdowns and now see an increase of new infections have begun to reinstate restrictions or quarantines. In Europe, the situation changes almost daily, as each government applies its own rules for travel to and from non-EU countries but also within the bloc, wreaking havoc on airlines’ schedules as they unground part of their fleets and restore networks. “This has effectively led to a patchwork system of travel restrictions and border controls throughout Europe, which may remain in place for weeks or months to come,” Airlines for Europe (A4E) and ACI Europe lamented in a joint statement. “As a result, there is very little clarity and significant uncertainty on which citizens can travel where,” the European airlines and airports trade groups said.
For Thomas Reynaert, managing director of A4E, the situation “is also creating an uneven playing field within Europe at a time when our sector is still struggling for survival.” IATA projects Europe’s airlines to lose $21.5 billion in 2020 and account for among the top three worst-affected regions, globally. Passenger demand is set to decline by over half, according to IATA’s forecast.
Eurocontrol data show that some 13,378 flights operated in the European network on July 13. That equates to about 37 percent of 2019 levels, though it represents a welcome increase on the 4,679 flights that took place a month earlier. Ryanair, which grounded up to 98 percent of its fleet, reclaimed its pre-coronavirus leadership position and operated 1,006 flights. Three low-cost carriers rank in the top five in terms of movements, Ryanair, Wizz Air, and EasyJet. Only one EU legacy airline, Germany’s Lufthansa, features in the top five despite most of the bloc’s flag carriers—including Air France, Austrian Airlines, airBaltic, Finnair, KLM, SAS, and TAP Air Portugal—having received generous financial support packages from their governments.
Generous Government Aid But Not to All Airlines
State aid made available to airlines due to Covid-19 topped $120 billion by early June, IATA analysis reveals. However, not all governments, mainly in Asia, Latin America, and Africa, have shown a willingness or an ability to afford s supporting their airlines in the same fashion, leaving operators cashless. “Several airlines have already entered bankruptcy protection or administration since the start of the pandemic, including Aeromexico, Air Mauritius, Avianca, South Africa’s Comair, LATAM Airlines, Thai Airways, and Virgin Australia. With all of them, the failure to secure financial support from their governments was the main driver,” pointed out Brendan Sobie, founder of Singapore-based independent aviation consulting and analysis firm Sobie Aviation. He added he expects all seven to successfully emerge from bankruptcy or administration and survive following restructurings.
A handful of other airlines have ceased operations entirely and are in the process of being liquidated—Austria’s Level Europe and sister airline Level France, Germany’s SunExpress Deutschland and Thailand-based NokScoot—“but they were small subsidiaries of much larger parents that continue to operate,” Sobie told AIN.
He warned that a few more Asian budget airlines could shut down, joining NokScoot, including some of the nine airlines that operate under the AirAsia brand. “Asia’s independent LCCs are currently at a disadvantage because thus far the bailout packages by Asian governments have only benefitted full-service airlines and their LCC subsidiaries,” Sobie asserted, adding that governments might still step in on behalf of LCCs. For example, AirAsia expects to secure government loan guarantees in Malaysia and the Philippines, helping to support an overall restructuring that also includes a planned equity sale and renegotiated aircraft lease agreements.
According to IATA predictions, airlines in the Asia-Pacific region will be the hardest hit by the coronavirus crisis of any global region, with losses expected to total $29 billion for 2020. The association expects Asia-Pacific passenger demand to fall 53.8 percent year-over-year.