Rough landing: 2020 will be a terrible year for air transportation

  • We expect airlines’ aggregate revenues to plummet by USD310bn to USD525bn and profitability to become negative with a staggering USD60bn operating loss. Though lockdowns are now gradually being lifted and borders are starting to re-open, our central scenario anticipates a progressive exit lasting another six months, leading to a U-shaped recovery in 2021. As a result, demand in global air transport should fall by -37% (4q/4q) in 2020 before rebounding by +39% and +10% in 2021 and 2022, respectively.
  • Up to 30% of the workforce in the sector is at risk of looming layoffs. Airlines have had no choice but to take urgent measures to curb cash outflows in the short run, including grounding planes, temporary furloughs and postponing ticket refunds for cancelled flights. In spite of these steps, as well as massive state support to the tune of USD125bn, additional restructuring measures can’t be avoided in the second half of 2020. In the U.S., for example, deep job cuts are coming after October 1 as the federal bailout for the airline industry covers around two-thirds of overall labor costs through September. Up to a third of the sector’s jobs - roughly 750,000 pilots, flight attendants, baggage handlers, mechanics and others - could disappear.
  • The legacy of the outbreak is likely to reshape supply. The Covid-19 crisis is a major blow to private low-cost airlines, which depend on full flights. Complying with social distancing is likely to hit profitability. We also expect a new wave of consolidation in the industry. Despite sustained financial relief by many governments, already battered players in air transport, especially highly leveraged ones such as those in China, are likely to suffer. As a result, we expect more bankruptcies among air carriers in the next two years, following the recent failures of Virgin Australia, Avianca and Latam airlines.


Marc Livinec
Euler Hermes