Demand for air travel in the Middle East during 2021 is forecast to be nearly 68 per cent lower than in 2019, new data revealed.

 

According to the International Air Transport Association (IATA), the region is likely to see the slowest demand rebound of any in the world with North America seeing the fastest (down 41.5 per cent on 2019).

 

It added that region's airline capacity is likely to be 59 per cent lower compared to 2019 although losses will likely shrink to $4.2 billion from $7.9 billion in 2020.

 

"Middle Eastern carriers will benefit from relatively rapid vaccination rates on home markets. They will be hampered, however, by continued travel restrictions on many of the routes to emerging economies that are served through Gulf hub connections," IATA said in a statement.

 

"Net losses in 2021 are forecast at -13.8 per cent of revenues (reduced from -28.9 per cent of revenues in 2020). It will be the third smallest regional loss," it said.

 

Globally, IATA said it expects net airline industry losses of $47.7 billion in 2021, an improvement on the estimated net industry loss of $126.4 billion in 2020.

 

“This crisis is longer and deeper than anyone could have expected. Losses will be reduced from 2020, but the pain of the crisis increases. There is optimism in domestic markets where aviation’s hallmark resilience is demonstrated by rebounds in markets without internal travel restrictions. Government imposed travel restrictions, however, continue to dampen the strong underlying demand for international travel. Despite an estimated 2.4 billion people travelling by air in 2021, airlines will burn through a further $81 billion of cash,” said Willie Walsh, IATA’s Director General.

 

In the face of the ongoing crisis, IATA calls for: 

 

Plans for a restart in preparation for a recovery: IATA continues to urge governments to have plans in place so that no time is lost in restarting the sector when the epidemiological situation allows for a re-opening of borders.

 

“Most governments have not yet provided clear indications of the benchmarks that they will use to safely give people back their travel freedom,  In the meantime, a significant portion of the $3.5 trillion in GDP and 88 million jobs supported by aviation are at risk. Effectively restarting aviation will energise the travel and tourism sectors and the wider economy. With the virus becoming endemic, learning to safely live, work and travel with it is critical. That means governments must turn their focus to risk management to protect livelihoods as well as lives,” said Walsh.

 

Employment Support: Industry losses of this scale imply a cash burn of $81 billion in 2021 on top of $149 billion in 2020. Government financial relief measures and capital markets have been filling this hole in airline balance sheets, preventing widespread bankruptcies. The industry will recover but more government relief measures, particularly in the form of employment support programmes, will be needed this year. 

 

“Owing to government relief measures, cost-cutting, and success in accessing capital markets, some airlines appear able to ride out the storm. Others are less well-cushioned and may need to raise more cash from banks or capital markets. This will add to the industry’s debt burden, which has ballooned by $220 billion to $651 billion. There is a definite role for governments in providing relief measures that ensure critical employees and skills are retained to successfully restart and rebuild the industry,” said Walsh.

 

Cost containment/reduction: The whole industry will come out of the crisis financially weakened. Cost containment and reductions, wherever possible, will be key to restoring financial health.

 

“Containing and reducing costs will be top of mind for airlines. Governments and partners must have the same mentality. And that must be reflected in items big and small. There can be no tolerance for monopoly infrastructure suppliers gouging their customers to recoup losses through higher charges. Equally, we demand an end to the extortionate costs for Covid-19 testing with governments taking their cut on top of that with taxes. Everyone must be aligned in understanding that increased travel costs will mean a slower economic recovery. Cost reduction efforts on all sides are needed,” said Walsh.

 

IATA estimates that global travel will recover to 43 per cent of 2019 levels over the year. While that is a 26 per cent improvement on 2020, it is far from a recovery, it added.

 

Domestic markets will improve faster than international travel. Overall passenger numbers are expected to reach 2.4 billion in 2021. That is an improvement on the nearly 1.8 billion who travelled in 2020, but well below the 2019 peak of 4.5 billion.

 

International passenger traffic remained 86.6 per cent down on pre-crisis levels over the first two months of 2021. Vaccination progress in developed countries, particularly the US and Europe, is expected to combine with widespread testing capacity to enable a return to some international travel at scale in the second half of the year, reaching 34 per cent of 2019 demand levels.

 

Domestic passenger traffic is expected to perform significantly better than international markets. This is driven by strong GDP growth (5.2 per cent), accumulated consumer disposable cash during lockdowns, pent-up demand, and the absence of domestic travel restrictions. IATA estimates that domestic markets could recover to 96 per cent of pre-crisis (2019) levels in the second half of 2021. That would be a 48 per cent improvement on 2020 performance.

 

Passenger revenues are expected to total $231 billion, up from $189 billion in 2020, but far below the $607 billion generated in 2019, while cargo revenues are expected to reach $152 billion, an historic high.

 

Capacity is likely to return at a slower pace than demand. That reflects the pressure on airlines from debt and fuel prices to operate only cashflow-positive services. Taking cargo and passenger traffic into account, the overall weighted load factor is forecast to rise a little to 60.3 per cent in 2021. This is considerably below the 66 per cent we estimate to be breakeven for profitability in 2021, IATA said. - TradeArabia News Service