The International Air Transport Association (IATA) revised its prediction for passenger traffic recovery on Tuesday. Earlier, the global airlines trade association projected pre-COVID-19 levels to return no earlier than 2023. However, in its latest update, it declared that recovery is slower than it initially expected; thereby taking an additional year.
Contributing Factors
In the detailed report, IATA identified three major contributing factors to the “more pessimistic recovery outlook:”
- Slow virus containment in the US and developing economies — The developing world has been hit the hardest from the coronavirus. These economies have by-and-large struggled to contain the spread of the virus. Right now the world is fearing a second wave of the coronavirus as renewed outbreaks (like in China) occurred in these countries. The US along with emerging economies “represent around 40% of global air travel markets.” So they will have a huge impact on global passenger traffic recovery.
- Reduced corporate travel — The corporate world has also caved in on itself. Major corporations have cut travel budgets and instead opted for the cheaper virtual option as part of cost-cutting measures. “Video conferencing appears to have made significant inroads as a substitute for in-person meetings.”
- Weak consumer confidence — The final piece of the puzzle is weak consumer confidence in travelling to either visit friends or relatives or leisure travel. A whopping “55% of respondents to IATA’s June passenger survey don’t plan to travel in 2020.”
Domestic and International Markets
Statistics quoted by IATA indicate that domestic traffic is recovering faster than international. This is because passengers are preferring short-haul domestic travel to avoid the greater risk for virus contraction involved in international travel. Additionally, IATA has predicted global enplanements to fall 55% this year. It expects this number to rise to 62% next year — still falling short 30% from 2019. Whereas domestic market RPKs will recover more slowly despite opening up sooner than international markets.
IATA’s Chief Executive, Alexandre de Juniac added:
Passenger traffic hit bottom in April, but the strength of the upturn has been very weak. What improvement we have seen has been domestic flying. International markets remain largely closed. Consumer confidence is depressed and not helped by the UK’s weekend decision to impose a blanket quarantine on all travelers returning from Spain. And in many parts of the world infections are still rising. All of this points to a longer recovery period and more pain for the industry and the global economy.
Last month, international traffic shrank by 96.8% while domestic traffic demand fell 67.6% as compared to last year.
RPK (Revenue Passenger Kilometers) and ASK (Available Seat Kilometers) are two important airline industry metrics. The higher an airline’s RPK the better. But recent conditions have caused a significant drop in this number globally. Here is a brief explanation of their importance from AirlineGeeks:
Airlines have to try to match their supply (ASKs) with the market demand (RPKs). While shortage of seats will often result in higher airfare, excess capacity can lead to reduced margins due to higher fixed costs. So an increase in capacity is positive only if it is supported by an adequate rise in demand for air travel.
What Now?
A
lthough the current outlook for commercial aviation is nothing short of grim, there is a silver lining. If a coronavirus vaccine is developed this year and made widely accessible it “could allow a faster recovery.”
Another game-changer could be the widespread use of air bridges. Like the European Union, the Middle East, South Asia and North American regions could benefit from quarantine-free travel corridors that could promote international air travel.
IATA also urged governments to pay heed to the International Civil Aviation Organization’s (ICAO’s) global guidelines for restoring air connectivity. The document features a framework to cope with the adverse impact that the pandemic has had on the global aviation transportation system.
What do you think of IATA’s latest forecast? Will air travel recover before 2024, or will it last longer? Let us know your thoughts in the comments below!
