IATA analysis shows COVID-19 putting half of passenger revenues at risk
As the COVID-19 crisis continues to impact the aviation industry, IATA analysis has outlined a fall of over 50 per cent in passenger revenues as a result.
The International Air Transport Association (IATA) has released updated analysis that shows the COVID-19 crisis will cause airline passenger revenues to drop by $314 billion in 2020, a 55 per cent decline when compared to 2019.
Previously, IATA estimated a $252 billion loss in revenues (a fall of 44 per cent when compared to 2019) in a scenario with severe travel restrictions lasting for three months.
The more recent figures now reflect a significant deepening of the crisis since that point, reflecting the following parameters:
- Severe domestic restrictions lasting three months
- Some restrictions on international travel extending beyond the initial three months
- Worldwide severe impact, including Africa and Latin America (which had a small presence of the disease and were expected to be less impacted in the March 2020 analysis).
Full-year passenger demand (domestic and international) is expected to decline by 48 per cent, compared to 2019. The two main elements driving this are:
- Overall Economic Developments: The world is heading for recession. The economic shock of the COVID-19 crisis is expected to be at its most severe in second quarter (Q2) when GDP is expected to shrink by six per cent – for comparison, GDP shrank by two per cent at the height of the Global Financial Crisis. Passenger demand closely follows GDP progression. The impact of reduced economic activity in Q2 alone would result in an eight per cent fall in passenger demand in the third quarter.
- Travel Restrictions: Travel restrictions will deepen the impact of recession on demand for travel. The most severe impact is expected to be in Q2. As of early April, the number of flights globally was down by 80 per cent, compared to 2019, in large part owing to severe travel restrictions imposed by governments to limit the spread of the virus. Domestic markets could still see the start of an upturn in demand beginning in the third quarter during the first stage of travel restrictions being lifted. International markets, however, will be slower to resume, as it appears likely that governments will retain these travel restrictions longer.
IATA’s Director General and CEO, Alexandre de Juniac, said: “The industry’s outlook grows darker by the day. The scale of the crisis makes a sharp V-shaped recovery unlikely. Realistically, it will be a U-shaped recovery with domestic travel coming back faster than the international market. We could see more than half of passenger revenues disappear. That would be a $314 billion hit. Several governments have stepped up with new or expanded financial relief measures, but the situation remains critical. Airlines could burn through $61 billion of cash reserves in the second quarter alone. That puts at risk 25 million jobs dependent on aviation. Without urgent relief, many airlines will not survive to lead the economic recovery.”
Governments must include aviation in their stabilisation packages. Airlines are at the core of a value chain that supports some 65.5 million jobs worldwide. Each of the individual 2.7 million airline jobs supports 24 additional jobs in the economy.
“Financial relief for airlines today should be a critical policy measure for governments. Supporting airlines will keep vital supply chains working through the crisis. Every airline job saved will keep 24 more people employed, and this could give airlines a fighting chance of being viable businesses that are ready to lead the recovery by connecting economies when the pandemic is contained. If airlines are not ready, the economic pain of COVID-19 will be unnecessarily prolonged,” added de Juniac.
IATA has proposed a number of relief options for governments to consider, including:
- Direct financial support to passenger and cargo carriers to compensate for reduced revenues and liquidity attributable to travel restrictions imposed as a result of COVID-19
- Loans, loan guarantees and support for the corporate bond market by governments or central banks – the corporate bond market is a vital source of finance for airlines, but the eligibility of corporate bonds for central bank support needs to be extended and guaranteed by governments to provide access for a wider range of companies
- Tax relief – rebates on payroll taxes paid to date in 2020 and/or an extension of payment terms for the rest of 2020, along with a temporary waiver of ticket taxes and other government-imposed levies.