National Post (National Edition)
FP19 DEMAND
`Airlines will have to deleverage'
IATA BOOSTS LOSS OUTLOOK AS REBOUND DELAYED.
• Delays in COVID-19 vaccination rollouts mean global airlines will continue to rack up significant losses this year, as traffic demand probably won't recover before the second half, the industry's top lobby group says.
Carriers globally are on track to post a combined net loss of US$47.7 billion in 2021, the International Air Transport Association said Wednesday in an updated forecast. Although that's an improvement on the estimated 2020 loss of US$126.4 billion, it's more than IATA's December prediction of a US$38-billion shortfall for 2021.
“Airlines are making progress, but we think we're going to have to wait until 2022 for the industry to get back to break even or profitability,” Brian Pearce, IATA's chief economist, said on a conference call.
About 2.4 billion people are expected to fly in 2021 — up from last year's 1.8 billion, but down from the 2019 peak of 4.5 billion, IATA said. Industry revenues will probably hit US$458 billion, or 55 per cent of the US$838 billion booked in 2019 — the last full year before the pandemic.
The crisis “is much deeper and has extended longer than anybody expected,” Willie Walsh, IATA's new secretary general, told reporters. A pickup in demand “has been pushed forward, and we're now looking at recovery in the second half,” he said.
Countries such as the U.S. and the U.K. are expected to have 75 per cent of their population vaccinated by July, which should allow some international markets to reopen, IATA says, citing data from the British science analytics company Airfinity. Germany and France, however, aren't expected to reach that level before October.
“The key summer flying period is clearly at risk,” Pearce said. A widespread lowering of travel barriers “is unlikely before next year because of the pace of vaccination.”
One factor holding back travel demand is the cost of so-called PCR tests to detect COVID-19, which countries such as Canada require of all inbound passengers. In the U.K., travellers must take three PCR tests — one before the flight, and two more over eight days. Each test can cost as much as $200.
That's having “a material effect” on people's desire to travel, Pearce said.
“This is outrageous, when you look at the fees that are being charged,” Walsh said. “There's clear evidence of gouging, of profiteering. We need to address this. It's clearly unacceptable that companies are charging these prices when there's strong evidence that these tests can be done at significantly lower costs.”
Walsh also hit out at “monopoly or quasi-monopoly suppliers,” such as airport operators and air-navigation system companies, for refusing to cut prices in light of the carriers' precarious financial health.
“It is unacceptable for these suppliers to believe they can recover losses encountered in 2020 by gouging prices from the airline industry,” he said.
“We've had to take very significant pain, and they should have been doing that, too.”
Airline-industry debt soared 51 per cent to US$651 billion by the end of 2020 as many airlines took on bank or government loans to survive, IATA figures show. Eventually, those borrowings will need to be repaid.
“Clearly that is going to shape how airlines have to use their free cash flow in the recovery period,” Pearce said.
“Airlines will need to deleverage. This level of debt is not sustainable.”