While passenger air traffic remains stalled, air cargo is booming

The airlines industry is still suffering the severe impact of the pandemic. The total traffic for all of 2020 is expected to have plummeted by 66% compared to 2019, according to the latest estimate by the International Air Transport Association (IATA) from November 2020. Regarding passenger transportation for the sector, while traffic rebounded somewhat last summer after the Covid-19 outbreak in spring grounded the industry for several months, air travel recovery has since stalled once more (see Graph 1). Passenger air travel fell again in January and was 72% lower than the pre-crisis month of January 2019. This new downturn for airline passenger business was driven by a further tightening of travel restrictions by governments across the world, following the emergence of new Covid-19 variants. There was also a sharp decline in travel in the Chinese domestic market, although this has since recovered to an extent.

In marked contrast to the despairing state of the air passenger business, the air cargo business is booming. Volumes regained pre-crisis levels in January (see Graph 1). Revenues are stronger, as freight rates remain elevated due to the lack of capacity from the wide-body passenger aircraft fleet. However, cargo revenues pre-crisis represented only 12% of total revenues, so this business is not large enough to offset the massive and continuing loss of passenger revenues.


One of the main challenges for the sector during this crisis was to control the cash burn, as unavoidable semi-fixed costs (such as labour and maintenance) prevented a drastic reduction in operating costs. Many cash-burning companies have relied on support from their respective governments in the form of direct aid or tax relief in order to survive up to now. 

A very depressed short-term outlook

With the outbreak of new variants and the slow vaccination rollout in many countries, the outlook of the industry remains very depressed in the short term. In February, the IATA revised its forecasts downwards for this year with respect to passenger transport. Under a scenario involving Covid-19 variants, passenger transport might only grow 13% this year with respect to last year, to average 38% of 2019 levels. A return to pre-crisis levels in air traffic is not expected to occur before 2023 or 2024, according to various sources.

As the crisis is not about to disappear, and the airline industry is not expected to turn cash-positive before 2022, governments will still be asked to provide relief to companies by means of additional measures that do not add further debt to the industry’s already highly indebted sector. Future support will probably vary greatly from one country to another, according to the airline company’s actual situation and the health of the country’s public finances. Upon restarting, oil and jet fuel prices, which are now fluctuating around their pre-pandemic levels, will also add to the challenge of making air travel cash-positive again. 

Regional situation

The stringency of international air travel measures imposed by governments determines the impact of the crisis on the sector, and these measures are dependent on the infection rates and overall outlook determined by the speed of vaccination rollouts.

Because measures in Africa have been the least stringent, the continent posted the most resilient international air traffic performance through most of 2020. The Asia-Pacific region was the worst performer, with the deepest contraction for seven consecutive months in January; international passenger transport was down 94.6% in January 2021 compared to January 2019. Although Covid-19 infections have been highly controlled in this region recently, it is also the region where travel restrictions are most stringent.

Regarding domestic flights, the Asia-Pacific region is expected to benefit first from the recovery in large domestic markets such as China and India, and also from the strong economic rebound in China. The Chinese domestic market had already recovered to pre-crisis levels in 2020, albeit falling slightly in January 2021. Although airlines were lowering fares to stimulate demand – they were expected to achieve cash breakeven by the end of last year in China – the three biggest Chinese airlines still reported losses in the last quarter of 2020. 

Other countries with large domestic markets, lower infection rates and good progress in vaccination rollout could also see their domestic airlines progressively rebound. For example, in Russia, domestic passenger traffic was about 5% higher in January this year than in January 2019, driven by a fall in Covid-19 cases since a peak late in December, and by national holidays in the first week of the month.

Analyst: Florence Thiéry – f.thiery@credendo.com