Airlines are expected to make significant losses this year due to challenges in containing new coronavirus variants and slower vaccination in some regions, the International Air Transport Association has said (IATA).
The agency announced this as it revised its forecast issued last year in December.
IATA is projecting a post-tax loss of $47.7 billion in 2021 up from their initial $38 billion in December.
According to its forecast published in a report last week, IATA said that, “Financial performance will be worse and more varied this year than we expected in our December forecast, because of difficulties in controlling the virus variants and slower vaccination in some regions.”
In addition, the agency added, large airlines have raised sufficient cash to cover for these losses with the aviation sector expecting a cash burn of $81 billion.
Appeal to governments
“Many smaller airlines haven’t and will need government aid or to raise more cash from banks or capital markets – adding to the industry’s debt burden and balance sheet leverage problem,” the agency said.
RwandAir, the national carrier recently suspended flights to India due to high cases of Covid-19 in the country. Other regional airlines, such as Kenya Airways have also done the same.
However, IATA highlighted, the airlines woes will be compounded with the rising cost of fuel, which is expected to have a negative impact on the airlines.
“We now expect much higher fuel prices with jet at $68.9 per barrel from $49.5 and oil rising to $64.2 per barrel from 45.5 previously as the stronger global economy pulls all energy prices higher.”
The worst point of the impact of Covid-19 on airline profitability was in the second quarter of last year, when operating losses were more than 70 per cent of revenues. Cost-cutting and a strong cargo business helped reduce losses in the second half of 2020.
However, many airline costs are fixed over short periods and hard to avoid. As a result, losses were reduced only to around 50 per cent of revenues by the last quarter of 2020.
In November, 2020, officials at RwandAir expressed optimism of recovery, citing that the airline had resumed 70 per cent of its routes, which, had at the time, been halted by the pandemic.
In its recent forecast, IATA pointed out that cargo remains a very strong business for airlines in 2021 as the strong economy and restocking is driving an increase in share of world trade, with 13.1 per cent growth in volumes, which is higher than the World Trade Organisation forecast growth for global trade of eight per cent.
African airlines’ cargo demands in February increased by 44.2 per cent compared with the corresponding period in 2019 marking the strongest growth of all the regions, according to International Air Travel Association (IATA).