Airlines are expected to make Sh12.74 trillion ($118 billion) losses in 2020 up from the initial projection of Sh12.2 trillion ($113 billion) as the aviation agency revises the revenue that carriers will make in the wake of dwindling passenger numbers.
The International Air Transport Association (IATA) in a revised outlook for airline industry performance in 2020 and 2021 said deep industry losses will continue into 2021, even though performance is expected to improve over the period of the forecast.
IATA says the second half of 2021 is expected to see improvements after a difficult first half next year, with aggressive cost-cutting expected to combine with increased demand during 2021 due to the reopening of borders with testing and/or the widespread availability of a vaccine to see the industry turn cash-positive in the fourth quarter of 2021 which is earlier than previously forecast.
“This crisis is devastating and unrelenting. Airlines have cut costs by 45.8 percent, but revenues are down 60.9 percent. The result is that airlines will lose $66 for every passenger carried this year for a total net loss of $118.5 billion,” said Alexandre de Juniac, IATA’s Director General and CEO.
“This loss will be reduced sharply by $80 billion in 2021. But the prospect of losing $38.7 billion next year is nothing to celebrate. We need to get borders safely re-opened without quarantine so that people will fly again. And with airlines expected to bleed cash at least until the fourth quarter of 2021 there is no time to lose,” he added.
Passenger numbers are expected to plummet to 1.8 billion (60.5 percent down on the 4.5 billion passengers in 2019). This is nearly the same number that the industry carried in 2003.
Passenger revenues are expected to fall to $191 billion, less than a third of the $612 billion earned in 2019. This largely driven by a 66 percent fall in passenger demand (measured in Revenue Passenger Kilometers/RPK).
International markets were hit disproportionately hard with a 75 percent fall in demand. Domestic markets, largely propelled by a recovery in China and Russia, are expected to perform better and end 2020 49 percent below 2019 levels.
IATA says operational parameters for cargo are performing significantly better than for passenger but are still depressed compared to 2019.
“Cargo is performing better than the passenger business. It could not, however, make up for the fall in passenger revenue. But it has become a significantly larger part of airline revenues and cargo revenues are making it possible for airlines to sustain their skeleton international networks,” said Mr de Juniac.
In 2019 cargo accounted for 12 percent of revenues and that is expected to grow to 36 percent in 2020.
Locally, Kenya Airways is expanding its cargo business and it is targetting at least 20 percent of its income to come from cargo.
Kenya Airways has converted two of its Dreamliner into cargo aircraft after the carrier received approval from its lessors as it seeks to increase its revenue in the wake of dwindling returns occasioned by Covid-19.
The nod gave KQ a green light to turn the two high capacity passenger aircraft into freighters to supplement the existing size for cargo in the wake of diminishing demand for flying.
The Kenya Aiways had sought permission from the lessors to convert their aircraft into freighters to cover up for the low demand from passengers who seek to fly since the resumption of flights following grounding of the aircraft across the world.