Tuesday, June 9, 2020

Air Cargo is One Bright Spot for Carriers as Traffic Levels Slump Due to Virus

Airlines Brace Themselves for Record Losses as Freight Revenues Hold Up
Shipping News Feature

WORLDWIDE – It would seem for the airlines that the carriage of air cargo is the only bright spot in the mess which the virus is trailing in its wake. Although as against 2019 overall freight tonnes carried are expected to drop by 10.3 million tonnes to 51 million this year, the chronic shortage of available capacity has allowed carriers to hike rates by around 30%. With belly hold space drastically cut due to the shortage of passenger flights, annual cargo revenues are set to jump.

This week the International Air Transport Association (IATA) has been looking at prospects for those throughout the industry, and the forecast is gloomy to say the least. IATA reckons that airlines are expected to lose $84.3 billion in 2020 for a net profit margin of -20.1%. Revenues will fall 50% to $419 billion from $838 billion in 2019. In 2021, losses are expected to be cut to $15.8 billion as revenues rise to $598 billion.

The damage of course is due to the elimination of virtually all passenger revenues so far this year and these are expected to fall to $241 billion (down from $612 billion in 2019). This is greater than the fall in demand, reflecting an expected 18% fall in passenger yields as airlines try to encourage people to fly again through price stimulation. Load factors are expected to average 62.7% for 2020, some 20 percentage points below the record high of 82.5% achieved in 2019.

Costs are not falling as fast as demand. Total expenses of $517 billion are 34.9% below 2019 levels but revenues will see a 50% drop. Non-fuel unit costs will rise sharply by 14.1%, as fixed costs are spread over fewer passengers. Lower utilisation of aircraft and seats as a result of restrictions will also add to rising costs. Fuel prices offer some relief. In 2019 jet fuel averaged $77/barrel whereas the forecast average for 2020 is $36.8. Fuel is expected to account for 15% of overall costs (compared to 23.7% in 2019).

The passenger situation of course is the most influential factor on cargo as most air freight is carried, not by dedicated flights, but in the belly holds of the scheduled passenger services. IATA predicts cargo revenues will reach a near-record $110.8 billion in 2020 (up from $102.4 billion in 2019). As a portion of industry revenues, cargo will contribute approximately 26%, up from 12% in 2019. Alexandre de Juniac, IATA’s Director General and CEO observed:

“Financially, 2020 will go down as the worst year in the history of aviation. 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. That’s why government financial relief was and remains crucial as airlines burn through cash.

“Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us. A key to the recovery is universal implementation of the re-start measures agreed through the International Civil Aviation Organization (ICAO) to keep passengers and crew safe. And, with the help of effective contact tracing, these measures should give governments the confidence to open borders without quarantine measures.

“That’s an important part of the economic recovery because about 10% of the world’s GDP is from tourism and much of that depends on air travel. Getting people safely flying again will be a powerful economic boost. People will want to fly again, provided they have the confidence in their personal financial situation and the measures taken to keep travellers safe. There is no tried and true playbook for a recovery from Covid-19 but the ICAO Takeoff re-start plan outlines globally harmonised [procedures]. It is important that industry and governments follow it so that travellers will have the maximum reassurance about their safety.

”That will be a good start, and depending on how the pandemic evolves, knowledge of the virus deepens, or science improves, industry and governments will be better prepared for a globally coordinated response. That includes the potential removal of measures when it is safe. That will give airlines some breathing room to rebuild demand and repair damaged balance sheets.”

Photo: Courtesy of American Airlines Cargo.