Sector focus: Air transport

Airlines bore huge revenue losses in 2020 due to the pandemci, and it remains uncertain when activity will return to pre-covid levels.

Lockdowns, border closures and restrictions on travel made air transport one of the hardest-hit sectors of 2020. Fear of a highly contagious virus spread made people stay away from anything remotely connected to an airport or flight, unless absolutely essential.

Jet fuel costs took a hit with overall weakness in oil prices, but the lack of travel brought down revenues for airline companies.

According to the International Air Transport Association (IATA), 2020 will be the worst year in history for airlines, with a net loss of $84.3 billion. And losses will continue in 2021, albeit to a lesser extent. Airlines in all regions are expected to record negative operating income in 2020.

The report adds that revenues are expected to fall by more than demand as airlines significantly discount ticket prices to help stimulate travel. “The sharp fall in revenue led to high cash burn due to fixed and semi-fixed costs. Airlines face pressure to reduce operating costs.”

Ticket refunds and cancellations also added to the losses.

Air transport represents an important part of global economic development and is linked to various other sectors that share co-dependencies with it.

Stories of the year

Operators feel the squeeze

January 2020
The UK’s Civil Aviation Authority begins examining the possibility of making Manchester Airport a regulated asset, akin to Heathrow and Gatwick airports in London

March
The South Korean government imposes a 25 percent reduction on airport parking and rental fees to soften the impact felt by airlines due to decreased traffic and travel restrictions

May
Plans to privatise Hiroshima Airport are put on hold until at least 1 July 2021

Ratings agency S&P said in an August 2020 report that it expected global air passenger traffic to drop by 60-70 percent in 2020 compared with 2019. “A steeper decline than we estimated previously. We also expect a more gradual recovery to pre-covid-19 traffic levels by 2024.”

It added that it expects 2021 air passenger traffic to decline 30-40 percent compared with the 2019 base.

This has meant that the covid-19 pandemic is easily the most severe crisis that the airline industry has ever faced. There is hope that greater vaccination levels could spring action back into the sector, but this will take time.

Grounded

Even when travel restrictions are eased and borders are opened, air traffic will likely be slow to recover, as travellers are expected to be cautious about taking non-essential journeys.

And while governments provided substantial cash aid to airlines in 2020, most of that aid has to be repaid. Therefore, airlines will restart on higher levels of debt.

Overall, it is forecast that demand for air cargo and travel will rise sharply in 2021 but will remain well below 2019 levels.