Global demand in air transport will not return to its pre-Covid-19 level before 2023.
The unprecedented slump in international travel will make 2020 a terrible year for the air transportation industry.
“We expect airlines’ aggregate revenues to plummet by USD310bn to USD525bn and profitability to become negative with a staggering USD60bn operating loss,” says Alliance Research and Euler Hermes Hong Kong Services Limited.
In the report ‘Rough Landing: 2020 will be a terrible year for air transportation.” the analyst firm says the gradual lifting of lockdowns the airline industry is bound to suffer for the next 6 months.
“Though lockdowns are now gradually being lifted and borders are starting to re-open, our central scenario anticipates a progressive exit lasting another six months, leading to a U-shaped recovery in 2021.
“As a result, demand in global air transport should fall by -37% (4q/4q) in 2020 before rebounding by +39% and +10% in 2021 and 2022, respectively,” it says.
It also says global demand in air transport will not return to its pre-Covid-19 level before 2023.
The legacy of the outbreak is likely to reshape supply. The Covid-19 crisis is a major blow to private low-cost airlines, which depend on full flights. Complying with social distancing is likely to hit profitability.
“We also expect a new wave of consolidation in the industry. Despite sustained financial relief by many governments, already battered players in air transport, especially highly leveraged ones such as those in China, are likely to suffer.
“As a result, we expect more bankruptcies among air carriers in the next two years, following the recent failures of Virgin Australia, Avianca
and Latam airlines,” it says.
TWO YEARS RECOVERY
Global air demand could take two years to recover from Covid-19
In the first quarter of 2020, Covid-19, sparked an unprecedented slump in international tourism (see Figure 1), throwing the global transportation sector into chaos.
Air passenger demand nosedived by -53% m/m and by -22% 3m/3m at the end of Q1.
“For 2020 overall, we expect global air passenger demand to slump by -38% y/y. Global air cargo has suffered slightly less, (-15% m/m and -7% 3m/3m in Q1 2020), likely helped by the urgent need to deliver masks and medical supplies across the globe (see Figure 2).”