IATA Hinted of a New Dawn Beckoning the Aviation Industry
Last week, the International Air Transport Association (IATA) upgraded its outlook for the airline industry's 2022 financial performance citing the increased pace of recovery from the COVID-19 crisis.
The forecast which was released at IATA’s Annual General Meeting in Doha on June 20 also predicted passenger numbers to reach 83 per cent of pre-pandemic levels in 2022 due to strong pent-up demand, the lifting of travel restrictions in most markets, low unemployment in most countries, and expanded personal savings.
This brighter outlook is reflected in Singapore Airlines’ (SIA) latest operating statistics for May 2022 released earlier in June. SIA reported that it carried more than 1.7 million passengers at a group level (which includes a budget carrier, Scoot and its main brand, Singapore Airlines) in May. This is a staggering 1,326 per cent increase compared with a year ago and 17.4 per cent higher than last month. Compared with a year ago, its passenger capacity has risen 126 per cent.
The SIA statement said that the strong recovery in air travel that continued in May 2022 was because of Singapore’s relaxed border restrictions which started in April, which removed “the need for quarantine and on-arrival COVID-19 tests for fully vaccinated travellers and removing pre-departure COVID-19 tests.” It added that “Apart from North Asia, travel demand recovered rapidly across all route regions.”
SIA’s Group passenger capacity (measured in available seat-kilometres) reached 61 per cent of pre-COVID-19 levels in May 2022, four percentage points higher than the month before. Passenger load factor (PLF) for the month rose to a level not seen since the onset of the pandemic at 78.2 per cent. This was an improvement of 5.5 percentage points month-on-month or 63.9 percentage points year on year.
However, the cargo load factor was 22.3 per cent lower year-on-year at 65.4 per cent as cargo capacity (capacity tonne-kilometre) increased 30.2 per cent on the back of the resumption of passenger flights resulting in an increase of belly-hold space.
Poorer cargo performance by airlines is also what IATA expects this year. The airline organisation said that there will be a 10.4 per cent decline in global air cargo yields in 2022 compared with 2021 as the world economy slows. However, this only partially reverses the yield increases of 52.5 per cent in 2020 and 24.2 per cent in 2021. Overall, IATA is projecting cargo revenue to hit USD191 billion this year, 7 per cent lower than in 2021 but over twice that of pre-pandemic revenue of USD 100 billion in 2019. The industry is expected to carry over 68 million tonnes of cargo in 2022, which is a record high.
“Airlines are resilient. People are flying in ever greater numbers. And cargo is performing well against a backdrop of growing economic uncertainty,” said Willie Walsh, IATA’s Director-General.
The industry organisation further said that the general improvement in the financial performance of the aviation sector will be led by North American airlines which are predicted to deliver a USD 8.8 billion profit in 2022. Globally, it now expects losses to reduce to USD 9.7 billion from its October 2021 estimate of a USD 11.6 billion loss. At the height of the pandemic, the industry lost USD 137.7 billion in 2020 and USD 42.1 billion in 2021. IATA opined that industry-wide profitability is within reach in 2021.
IATA added, “Efficiency gains and improving yields are helping airlines to reduce losses even with rising labour and fuel costs.” The association also said that it expects net delivery of over 1,200 aircraft in 2022 due to industry optimism and commitment to emissions reductions.
Despite the upbeat outlook, IATA also highlighted some risk factors.
The war in Ukraine is one. The war is causing fuel costs to rise, and this may dampen demand for travel as airfares rise and consumer demand diminishes.
The conflict is also resulting in carriers re-routing their flights which would normally use the airspace in the affected region which results in higher costs. About seven per cent of international passenger traffic and 19 per cent of international cargo shipments normally transit through Russian airspace. The greater impact is in the specialised area of heavy-weight cargo where Russia and Ukraine are the market leaders, and the corresponding capacity loss will be difficult to replace.
Other negative factors are rising inflation which affects consumers’ purchasing power, rising interest rates which impact borrowings by airlines and the strength of the US dollar which will similarly put a dampener on growth as it increases the local-currency price of all USD-denominated debt and adds to the burden of paying for USD-denominated fuel imports.
There’s still the spectre of an outbreak of a new dangerous COVID-19 variant.
In its outlook, IATA pointed out that it assumes a gradual easing of COVID-19 restrictions in China in the second half of 2022. China’s domestic market is the world’s second-largest aviation domestic market and also accounts for about 10 per cent of global air traffic in 2019. A prolonged implementation of its tough COVID-19 policy will continue to depress the country and wreak havoc with global supply chains.
IATA’s Walsh urged governments to continue to keep their borders open, saying, “Border closures create economic pain but deliver little in terms of controlling the spread of the virus. With high levels of population immunity, advanced treatment methods, and surveillance procedures, the risks of COVID-19 can be managed.”
“It is a time for optimism, even if there are still challenges on costs, particularly fuel, and some lingering restrictions in a few key markets,” continued Walsh. “People who longed for the freedom to fly are taking to the skies again–and in growing numbers. By next year, most markets should see traffic reach or exceed pre-pandemic levels.”