It’s been a challenging 2021 for the global aviation sector, and the business has continued to be adversely affected by the Covid-19 crisis into 2021. Although global economic activity rebounded on the back of booming manufacturing production, travel restrictions kept air passenger numbers much lower than the industry had hoped for, especially for international travel. Second-quarter 2021 numbers improved compared with those for the first quarter because of the reopening of some domestic and regional markets. But industry-wide revenue passenger kilometres remained down a significant 64.5% between January 2021 and July 2021 versus the same period in precrisis 2019.
In the Middle East, airlines have had the advantage of wide-spread vaccination in their key home markets, IATA has noted in its review of 2021. They suffer, though, from the slow opening of the long-haul international markets that connect through the region’s hubs.
By the end of August 2021, $52.2bn had been pledged by various governments worldwide to assist the industry, adding to the $177.5bn provided in 2020. As in 2020, levels of support have varied widely, and only a small proportion of pledged funds overall has been in the form of direct, non-refundable cash injections.
Many, though not all, imminent airline bankruptcies have been averted through financial aid, which has been largely provided in the form of wage supports or loans.
IATA note that since the outbreak of Covid-19, huge advances have been made in the medical field in terms of understanding how the virus spreads, available treatments, measures to reduce and prevent transmission, and, above all, vaccinations. This year we have had vaccines – and the rollout continues. Despite this progress, as we know – various forms of travel restrictions remain in place across the globe, with some countries still resorting to quarantine measures to stop the importation of Covid-19. Singapore is an example of a nation that has attempted to open to the rest of the world this year, but the reopening is often suspended part amid its government’s fear of rising case numbers.
Data shows that the principal drivers of air passenger demand have changed during the crisis. Normally, a robust recovery in economic activity in advanced and emerging economies would contribute to a swift rebound in air travel volumes – the bounce back many were hoping for. But the improving global economic backdrop has had little impact on passenger volumes, as travel restrictions remained in place. Although some easing has taken place since the second quarter of 2020, restrictions remain sufficiently elevated in all regions — most notably in Asia-Pacific, where governments are risk averse — as to deter travel.
The strong upward trend in air cargo traffic observed in the second half of 2020 has continued into 2021. Air cargo has also overperformed global goods trade so far in 2021, a common pattern usually seen at the beginning of economic upturns, when businesses turn to air freight to rapidly restock inventories to meet rising demand. Air cargo also benefits from other supply chain dynamics, such as exceptionally long supplier delivery times and expensive fares for other transport modes. Upward-trending air cargo traffic globally has been reflected in major trade lanes, but there have been differences in the pace of recovery. IATA note that the North Pacific has “barely seen negative impact from the grounding
of passenger aircraft and travel restrictions” such that the large freighter fleet of North American carriers has been unable to meet demand.
On many other routes, such as the Middle East-Asia, high cargo yields have made it profitable to use passenger aircraft carrying few or no passengers – something we’ve seen here in Doha throughout the pandemic. Air cargo capacity has seen a slow but consistent climb, with significant progress made to date in 2021 compared with 2020.
A significant reduction in industry losses is expected in 2021, largely because of cost cuts and revenue growth, albeit slow. Large differentiation between regions will continue.
North American airlines, specifically in the United States, will benefit from a rapid vaccination rollout and an enormous home market. European carriers will also benefit from widespread vaccination, but a lack of co-ordination between governments in Europe will limit their improvement. The Asia-Pacific region remains mixed. Airlines in China benefit from good virus control and a large home market.
Here in the Middle East, airlines have the advantage of wide-spread vaccination in their key home markets. They suffer, though, from the slow opening of the long-haul international markets that connect through the region’s hubs. Latin American airlines should benefit from their large domestic markets, but the outlook for those markets is clouded by the challenge of controlling an infectious variant of the virus and by a slow rollout of vaccines relative to other regions of the world. Africa has more relaxed international travel restrictions than other regions, but vaccination rates continue to be low, which is likely to restrict the rebound of its international travel and limit gains by its air carriers. A slowed fall in losses is the best to be hoped for in this region.
Specifically, North American carriers outperformed carriers in all other regions. US airlines, including American Airlines and United, had positive operating and free cash flow generation amid a rebound in US domestic travel. European carriers, too, turned cash positive as they met the increased demand in summer peak season travel demand.
Asia-Pacific carriers’ cash outflows had diminished by the second quarter of 2021 on the success of Chinese carriers. Chinese airlines have returned to breakeven and are generating positive cash flows amid the fast recovery of their giant domestic market. Elsewhere, Latin American carriers are still suffering from negative cash flow, as some of them are restructuring.
This year saw reminded us once again of the risks associated with conflict zones. The recent events in Afghanistan and tensions elsewhere in the Middle East and North Africa serve as a reminder that the risks associated with conflict zones continue to be a major concern for aircraft operators. IATA note that following the shooting down of flight PS 752 shortly after take-off from Tehran in January 2020, Canada led the establishment of the Safe Skies Consultative Committee to address and prevent interference with civil aviation during conflicts and hostilities among and within nations.
The author is an aviation analyst. Twitter handle: @AlexInAir
Alex Macheras
