Reverse thrust for air travel
World’s airlines are losing another US$230m every day, in ‘the worst year in the history of aviation’
As more New Zealanders start flying around the country and the global airline industry shows more stuttering signs of recovery, it still faces its worst ever year for financial performance.
It is estimated that airlines will lose about $57 for every passenger carried and already there have been high profile casualties including Latam and fellow South American carrier Avianca, which are in Chapter 11 bankruptcy, while Virgin Australia collapsed into voluntary administration in April.
Governments have provided emergency aid running to $200 billion, including this country’s $900 million bailout loan for Air New Zealand — which says it may start tapping into the money within the next few months.
This week Cathay Pacific got a $US5b ($7.6b) Hong Kong government lifeline in return for a 6 per cent stake in the airline, battered not only by its near-total grounding because of Covid-19, but also by political unrest in the territory.
Since the coronavirus hit in January, about 800,000 airline employees around the world have been subsidised by governments.
According to route analysing firm OAG, global capacity in June is expected to be 62 per cent lower than last June. This is a slight improvement on May when overall capacity was 63 per cent lower than last year.
All up, just on 14 years of passenger growth will be lost around the world this year.
In New Zealand domestic capacity has built up more quickly than forecast when the Covid-19 crisis was emerging. Air New Zealand has about 55 per cent of domestic capacity running but it is uncertain when the lucrative end of the market — corporate and government travellers — will start booking in high numbers.
Jetstar paused operations in March but will start 60 per cent of its domestic network in this country from July. It sold 15,000 tickets within 24 hours of them going on sale this week.
Air New Zealand will put 15 Boeing 777 aircraft in “deep storage” in Alice Springs, but is also cautiously expanding its international network. Later this month it will operate one return service a week to Japan (down from up to 10 pre-Covid) and still has just a handful of flights a week across the Tasman and to the Pacific.
Its skeleton service to Los Angeles and Hong Kong is freight-heavy and the airline has said a return to anything approaching its former longhaul network won’t come until next year.
The airline believes until there is a vaccine, effective treatment or elimination of the disease in key markets, the Government will not fully open the border, although there are growing hopes that Tasman and Pacific bubbles will be in place before then.
One analyst is factoring in the resumption of transtasman flights in October and the Pacific from early next year, with initial loads just 40 per cent of pre-Covid business.
In the meantime Air New Zealand faces a full-year loss and having to lay off more staff as it slashes $150 million more in labour costs over the next four months.
The airline has already laid off 4000 staff, while around the world other carriers have also sacked tens of thousands of workers.
The International Air Transport Association (IATA) in its latest financial outlook says airlines are expected to lose $US84.3b ($128b) this year. Revenue will fall 50 per cent to $US419b from $838b in 2019. In 2021, losses are expected to be cut to US$15.8 billion as revenue rises to US$598b.
“Financially, 2020 will go down as the worst year in the history of aviation,” said the association’s director general and chief executive Alexandre de Juniac. “On average, every day of this year will add $230 million to industry losses. In total that’s a loss of $84.3 billion. It means that — based on an estimate of 2.2 billion passengers this year — airlines will lose $37.54 per passenger.”
While traffic is slowly improving, passenger numbers will roughly halve to 2.25 billion, approximately equal to 2006 levels.
Capacity, however, cannot be adjusted quickly enough.
Load factors are expected to average 62.7 per cent for 2020, some 20 percentage points below the record high of 82.5 per cent achieved last year, and costs are not falling as fast as demand.