IATA outlook for airline industry recovery slides to 2024

A cargo tug drops off a load next to a Cathay Pacific jet. The air cargo business in June was down a fifth from last year's level.

The International Air Transport Association on Tuesday pushed back by a year its estimate for the airline industry to fully recover from the novel coronavirus and said the air cargo market’s modest improvement in June still lagged growth in manufacturing output and trade.

The airline group downgraded its forecast for global passenger traffic and revenues, saying it will not return to last year’s levels until 2024 because a COVID-19 resurgence in several countries, depressed corporate travel and weak consumer confidence is slowing growth more than expected.

A slower passenger recovery means fewer aircraft in the air that can also carry cargo – and higher rates or transport delays for shippers – especially on freight-heavy international routes.

Belly capacity for international air cargo shrank 70% in June compared to 2019 because airlines were still grounding most fleets. A 32% increase in available freighter space could not fill the void, leaving the global market with 34% less overall capacity – the same as in May, according to IATA data. Even though airlines resumed limited international passenger routes they also stopped using some cargo-only jets that became uneconomical to operate at lower rates. 

“Passenger traffic hit bottom in April, but the strength of the upturn has been very weak. What improvement we have seen has been domestic flying. International markets remain largely closed,” said IATA Director General Alexandre de Juniac in a statement. “Domestic traffic improvements notwithstanding, international traffic, which in normal times accounts for close to two-thirds of global air travel, remains virtually non-existent. Most countries are still closed to international arrivals or have imposed quarantines that have the same effect as an outright lockdown.

“Summer — our industry’s busiest season — is passing by rapidly, with little chance for an upswing in international air travel unless governments move quickly and decisively to find alternatives to border closures, confidence-destroying stop-start re-openings and demand-killing quarantines,” he said.

The IATA chief castigated the U.K. for its new 14-day quarantine on anyone returning from Spain, which is experiencing a surge in new COVID cases.

Consumer confidence wanes

Passenger traffic in June serves as a reminder of the challenges ahead for the industry after an initial spurt in bookings led to increased optimism across the industry. 

Traffic, measured by revenue-paying passengers multiplied by distance traveled, fell 86.5% compared to June 2019. That was an improvement from the 91% drop in business during May, but fell short of many industry expectations and was mostly driven by rising demand in domestic markets, notably in China, according to IATA. The June load factor set an all-time low for the month at 57.6%.

IATA said the recovery in short-haul and domestic travel is still expected to happen faster than for international travel, which was 95% lower than last year in June. As a result, passenger emplanement figures will rise faster than traffic measured in revenue passenger kilometers. But IATA said the recovery of domestic business will also fall back by a year from 2022 to 2023. For 2020, the number of passengers carried is expected to decline by 55% compared to 2019 – worse than the April forecast of a 46% decline. 

The revised outlook takes into consideration the novel coronavirus’ resurgence in the U.S., but also flare ups in China and concerns that the virus is not contained in emerging economies, such as Latin America. Emerging markets and the U.S. represent about 40% of the global air travel market and their continued closure, especially to international travel, is a significant drag on recovery, IATA said.

Corporate travel budgets are expected to remain constrained as companies try to save money until the economy improves. IATA said recent surveys suggest the high correlation between GDP growth and air travel has weakened, particularly with regard to business travel as companies turn to video conferencing as a substitute for in-person meetings.

Last week, however, United Airlines’ executives argued the video conference phenomenon is temporary and that corporate sales teams will try to meet customers as soon as possible. 

While pent-up demand exists for visiting family and friends, and leisure travel, consumer confidence is weak in the face of concerns over job security and rising unemployment, as well as risks of catching COVID-19, IATA said. About 55% of respondents to IATA’s June passenger survey don’t plan to travel in 2020.

IATA forecast passenger numbers will rise 62% next year, but will still be 30% below the 2019 level. 

de Juniac reiterated a request for governments to waive use-it-or-lose it requirements for takeoff and landing slots at busy airports during the upcoming winter season so airlines aren’t forced to operate money-losing flights to retain access during the downturn. 

Cargo green shoots

Cargo business for the airline industry is showing some improvement, but the gains are small and the future very uncertain, according to IATA and market experts.

IATA said global demand, measured in cargo-ton-kilometers, fell 17.6% in June, a modest improvement from the 20.1% year-over-year fall recorded in May. The all-important international market fared worse, down 19.9% from a year ago.

Improved economic activity didn’t translate into better air transport business. Global manufacturing demand stabilized in June, with the Purchasing Managers Index up 11 points compared to May – the strongest monthly increase since 1999 and the highest level since January. IATA said airfreight didn’t grow as much as possible because it lost market share to cheaper surface modes. 

“Cargo is, by far, healthier than the passenger markets but doing business remains exceptionally challenging. While economic activity is re-starting after major lockdown disruptions there has not been a major boost in demand,” de Juniac said. “The rush to get personal protective equipment to market has subsided as supply chains regularized, enabling shippers to use cheaper sea and rail options.”

All regions recorded cargo declines in June, with carriers in Europe and Latin America leading the way. North American carriers reported an 8.8% decline in cargo volume, the smallest of any region. IATA attributed the relative cargo strength to several airlines with large freighter fleets as well as U.S. emergency relief for the airline industry. Less demand for hospital gear contributed to a 20% reduction in freight volume for Asian carriers.

Cathay Pacific and sister all-cargo carrier Air Hong, for example, experienced a 5% month-over-month drop in tonnage during June as demand for medical supplies waned. Overall, the group experienced a 43% drop in cargo and mail tonnage from June 2019. 

Meanwhile, the U.S. Bureau of Transportation Statistics said air carriers hauled 10.7% less cargo between the U.S. and foreign points in May on an annual basis, with European traffic down 40%.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.


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