Mavroudis Global Transportation & Logistics

Airlines absorb $391 billion revenue shortfall in 2020

January 20, 2021

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The financial hardship has continued into 2021 as airlines try to cope with a double-dip recession. Experts are maintaining their outlook for a prolonged depression in passenger demand that will likely keep airlines at a diminished size for several years. 

ICAO estimated the airline sector’s first-half reduction in gross revenue will be between $163 billion and $194 billion. But there is optimism in many circles that business will start to improve as new COVID vaccines reach more people.

The airline sector’s revenue shortfall was in the $371 billion to $421 billion range estimated in November by the International Air Transport Association (IATA). The trade group said at the time airlines would lose a combined $118 billion in net profits. It revised its estimates downward two times last year as the crisis worsened.

The lack of liquidity forced several carriers to go under and others to secure government bailouts or bankruptcy protection.

Overall, aviation operators generated $500 billion less revenue in 2020, according to ICAO. Airports had an additional $115 billion in expected revenues wiped away, and air navigation service providers lost $13 billion in receipts.

In 2020, airlines carried 1.8 billion passengers, compared with 4.5 billion the year before, the ICAO report said.

The U.N. organization said passenger traffic could begin to improve after a bleak first quarter depending on the effectiveness of COVID vaccination programs and new approaches to pandemic management. Seat capacity is expected to be 40% to 47% below the 2019 baseline following a 50% reduction last year.

In the most optimistic scenario, passenger volumes are expected to recover to 71% of their 2019 levels. A darker scenario foresees only a 49% recovery in passenger business. International traffic, which dictates the number of widebody aircraft in service that cargo shippers covet, is forecast to be at 53% of the pre-crisis level in the best-case scenario and only at 26% in the worst case.

(Source: International Civil Aviation Organization)

Although the global all-cargo fleet in 2020 grew 4.8%, or 270 units, to 7,021 aircraft, according to ICAO figures, manufacturers, retailers and agricultural producers are heavily dependent on passenger flights to transport their goods.  More than 50% of air shipments move in the bellies of passenger aircraft, and with passenger networks operating at a fraction of normal scale there is a squeeze on space, especially on transcontinental routes that require larger aircraft. That is why the downturn in international traffic is of special concern to shippers.

The pandemic began to impact air travel in late January 2020 when the outbreak was discovered in Wuhan, China. Initially, flight cancellations were limited to a few countries, but by the end of March the air transport system virtually came to a halt as airlines sidelined their fleets. At the time, the number of international passengers fell 98% below 2019 levels and domestic traffic was down 87%.

COVID Setback

Passenger traffic saw a modest rebound during the summer travel period, but the upward trend was short-lived and began to turn downward again in September as a second wave of infections hit regions such as Europe and governments reintroduced restrictive measures. In November, international passenger traffic was down 88.3% from the prior year, according to the latest IATA figures.

Governments have recently responded to new, more transmissible COVID strains by clamping down on borders even further. Air Canada and WestJet this month began slashing flights and laying off workers after the Canadian government imposed pre-departure testing requirements on top of provincial lockdowns and quarantine measures.

New data from aviation analytics firm Cirium shows the average weekly number of flights was down less than a quarter from 2019 on Christmas Eve, but that since the holiday peak that figure has slid back to a 35% deficit. About 30% of the global passenger fleet remains in storage, it said.

Contraction in the U.S. market didn’t begin again until October, but airline executives say bookings have tailed off despite mini-surges around the Thanksgiving and Christmas holidays. Delta Air Lines (NYSE: DAL) last week said that it expects cash burn to stay at about $12 million or more through March, while Alaska Air Group (NYSE: ALK) reported passenger throughput has worsened since October and that it expects cash outflows to accelerate in January. 

The difficulty in generating cash was underscored Tuesday by the U.S. Bureau of Transportation Statistics, which released figures showing the average U.S. domestic air fare declined in the third quarter of 2020 to $245, the lowest inflation-adjusted average quarterly airfare since records were first kept in 1995. Fares were 30% below those in the third quarter of 2019.

President-elect Joe Biden said he will reverse a Trump administration effort Monday to lift travel bans that have prevented most travelers from Europe, the U.K. and Brazil from entering the country since last spring in the initial effort to contain the spread of COVID-19. 

The border closures apply to foreigners who have been in those countries for two weeks or more. The White House announced the new rules would go into effect on Jan. 26, the same day as rules requiring all people flying to the U.S. to test negative for COVID-19 at least three days before departure.

Airline industry leaders have expressed frustration with strict travel restrictions and quarantine requirements, saying that a robust pre-departure testing regime can keep the flying public safe and help carriers stay afloat financially. IATA on Tuesday appealed for European Union members to agree on common digital European COVID-19 vaccination certificate that would enable those who are vaccinated to travel freely within Europe without COVID-19 testing. IATA has also developed a trial app that enables passengers to create a ‘digital passport’ to verify their pre-travel test or vaccination meets the requirements of the destination. Travelers can share the test and vaccination certificates with authorities and airlines to facilitate travel.

The ICAO report underscored how the pandemic restrictions have had a disproportionate impact on carriers’ international operations. Overall, there was a 50% drop in domestic passenger traffic, while international traffic fell by 74%.

Domestic travel has fared better because people are worried about traveling too far from home and fewer health measures are involved than when crossing borders. Domestic travel numbers are also skewed by the fact that passenger traffic in China and the Russian Federation have already returned to pre-pandemic levels. 

Cross-border flights remain down about three-quarters year-over-year versus 35% for domestic flights, according to Cirium.

The Asia-Pacific and North American regions led the global recovery in passenger totals because of their significant domestic markets, while Europe has experienced a steep drop since September. Latin American and Caribbean traffic saw improvement in the fourth quarter, while recoveries in Africa and the Middle East are less robust. 

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