MIAMI – The COVID-19 crisis will cause passenger revenues to drop by $314 billion in 2020, a 55% decline compared to 2019, according to the latest analysis from the International Air Transport Association (IATA).
On March 24, IATA updated its March 5 report on the revenue impact of the COVID-19, forecasting a drop of US$252bn, a 44% decline, considering the numbers per region as previously forecasted at the beginning of March.
Today’s updated figures paint a worsening picture for the industry due to severe domestic and international travel restrictions in effect for at least three months, in addition to a worldwide severe impact, including Africa and Latin America, both expected to be less impacted in the March analysis.
In addition, a 48% decline is expected for full-year passenger demand (domestic and international), compared to 2019. The two main causes: the Q2 recession and the ongoing travel restrictions.
A worldwide economic recession in Q2 is coming, as GDP is expected to shrink by 6%, in comparison to 2% at the height of the Global Financial Crisis. As passenger demand is linked to GDP output, the impact of the Q2 recession would result in an 8% fall in passenger demand in Q3.
On its part, travel restrictions will hit the industry the hardest in Q2, worsening the impact of the recession, as the number of flights globally was down 80% in early April compared to 2019.
However, the report does say that domestic markets “could still see the start of an upturn in demand” beginning in Q3 once those travel restrictions are lifted. Alas, international markets will not be so lucky as it is probable that governments worldwide will keep travel restrictions longer.
Citing as examples China and South Korea, Alexander de Juniac, IATA Director General and CEO, said that while the countries took control of the disease internally, they were “now doubling down on international travel restrictions because they don’t want to risk importing a second outbreak.”
de Juniac also woefully remarked in today’s media briefing that “the industry’s outlook grows darker by the day. The scale of the crisis makes a sharp V-shaped recovery unlikely.”
The CEO added, “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.”
Reiterating a call for government support
IATA continues to call on governments to include aviation in stabilization packages, stating that airlines were “at the core of a value chain” that supports some 65.5 million jobs worldwide, of which each of the 2.7 million airline jobs supports 24 more jobs in the economy.
The report contends that supporting airlines with government-backed financial relief will keep vital supply chains working through the crisis, noting that every airline job saved will keep 24 more people employed.
In addition, government support will give airlines “a fighting chance of being viable businesses,” ready to lead the recovery by connecting economies when the pandemic is finally contained.
“If airlines are not ready, the economic pain of COVID-19 will be unnecessarily prolonged,” said de Juniac.
As the situation stands, IATA proposes the following relief options for governments to consider:
- 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.
IATA’s Director General CEO ended today’s briefing with the following historic rematks:
“This week we are reminded of the precedent for industry and government cooperation in the face of enormous challenges. The Chicago Convention was signed and ICAO was founded by governments in December 1944. With that, the regulatory framework for the post-war system for global air transport was created, even as World War II raged.”
“A few months later, airlines joined together to help governments in turning that framework into the industry that we have today. IATA was founded on 19 April 1945. That’s 75 years ago this week.”
“That’s very similar to the call to action we have today. Like a war, COVID-19 has brought death and economic devastation. And even though the end-game for COVID-19 is not yet clearly visible, it is absolutely clear that we must work and plan for it together.”