No less than 68% of the world’s airline Chief Financial Officers and Heads of Cargo expect profits not to improve or even to decline further over the next 12 months. This is one of the results reported in the International Air Transport Association’s (Iata's) 'Airline Business Confidence Index July 2020' survey, published on Wednesday. Iata is the representative body for the global airline industry.
Further, 77% of the respondents to the Iata survey reported that their airlines suffered a fall in profits during the second quarter of this year. However, that represented a slight improvement in comparison to the situation reported in Iata’s previous survey, published in April. In the latest report, 19% of the respondents actually reported that their profits had risen. This was due to their focusing on air cargo operations, the yields for which rocketed because of a lack of capacity resulting from the loss of passenger airliner belly hold cargo capacity caused by the near global halting of passenger flights. And 32% of respondents expected their profits to improve over the next year as air passenger travel resumed.
Regarding the overall impact of the Covid-19 pandemic, only 19% of respondents expected air traffic demand to return to 2019 levels within just six to 12 months, while 39% thought it would happen within 12 to 24 months, but the largest group, 42%, expected it to take more than two years to be achieved. In terms of regions, 42% thought that the Asia-Pacific would be the first to return to 2019 levels, followed by 35% saying it would be Europe. The Middle East was selected by 10%, Africa and North America by 6% each, while none – 0% – chose Latin America. The reverse question – which region would regain 2019 traffic demand last – the Asia-Pacific and Europe were each chosen by 6%, the Middle East by 10%, Africa by 13%, Latin America by 26% and North America by 39%.
Focusing in on the question of demand, the survey showed that 96% of respondents had suffered from a fall in passenger demand during the second quarter. Iata observed that this was unsurprising. However, there was no unanimity when it came to expectations of passenger demand over the next 12 months, with 42% expecting a further decrease in demand, 8% believing it would neither get worse nor get better, and 50% expecting an improvement. Regarding cargo demand, 30% of the survey respondents reported an increase during the second quarter, due to the lack of capacity created by the grounding of airliners. For the next 12 months, 37% foresaw a decrease in cargo traffic volumes, 13% expected no change and 50% believed they would increase.
Unsurprisingly, there have been and are expected to be consequences for airlines’ workforces. During the second quarter, 45% of respondents reduced their staff complements, as part of cost-cutting in response to Covid-19; on the other hand, thanks to the assistance of their governments, 52% were able to avoid cutting jobs at that time. However, 55% believe that they will have to dismiss workers during the coming year, as they expect the scope of their operations will be smaller following the pandemic, which will require further cost-cutting. Only 19% are forecasting increasing their workforces as commercial passenger operations resume (these airlines are currently functioning with only minimum staff).
Concerning input costs, 42% reported a decline over the past three months, largely because of lower fuel and staff costs. For the next 12 months, 39% expect further falls in input costs, 26% believe they will stay at current levels, while 35% are forecasting that they will increase.
As for yields, those for passengers continued to fall during the past three months because of the dramatic fall in demand, with 58% of respondents reporting a fall in passenger yields, although 11% said that they had experienced no change and 32% stated that their passenger yields had improved. For the coming year, 57% expected a further deterioration, 24% foresaw no change and 19% forecast an increase. On the other hand, cargo yields went up significantly, with 67% recording increases over the last three months and only 15% reporting decreases and 19% saying they had experienced no change. However, there is pessimism regarding the next 12 months, with 62% predicting a fall in cargo yields in contrast to 24% expecting yields to stay as they now are and only 14% forecasting an improvement.