International Air Transport Association (IATA), the industry trade alliance with 290 member airlines representing 82% of the world’s air traffic, has been doing some serious research over the past few weeks to put numbers out about the impact of CoVid-19 on airlines. Last week, they told us about 25 million aviation jobs are at risk due to CoVid-19.
The IATA had, during the initial study on March 24, 2020, predicted a USD 252 billion drop in passenger revenue (-44%) in 2020 compared to 2019, with sever travel restrictions lasting three months.
Today, IATA released an updated analysis showing that the COVID-19 crisis will see airline passenger revenues drop by $314 billion in 2020, a 55% decline compared to 2019.
The updated figures reflect a significant deepening of the crisis since then, and reflect 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 analysis).
Full-year passenger demand (domestic and international) is expected to be down 48% compared to 2019. The two main elements driving this are:
- Overall Economic Developments: The world is heading for a recession. The economic shock of the COVID-19 crisis is expected to be at its most severe in Q2 when GDP is expected to shrink by 6% (by comparison, GDP shrank by 2% 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 8% fall in passenger demand in the third quarter.
- Travel Restrictions: Travel restrictions will deepen the impact of the 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 80% compared to 2019 in large part owing to severe travel restrictions imposed by governments to fight the spread of the virus. Domestic markets could still see the start of an upturn in demand beginning in the third quarter in the first stage of lifting travel restrictions. International markets, however, will be slower to resume as it appears likely that governments will retain these travel restrictions longer.
“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. And without urgent relief, many airlines will not survive to lead the economic recovery,” said Alexandre de Juniac, IATA’s Director General and CEO.
There is a full presentation pack talking about the situation today, which is an interesting read if you are interested.
The exact impact of the CoVid-19 caused shutdowns will only be known once it is over. Over the past couple of months, things have changed rapidly, causing IATA to alter their predictions repeatedly over a while. The numbers are big and a massive cause for concern, given most industry folk are taking the view that it would take between 1 and 3 years for demand to return to pre-CoVid-19 levels.
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