Passenger Traffic Growth to Contract by 50%?

The Malaysian Aviation Commission (Mavcom) has revised downward its passenger traffic forecast for 2020, as reported by Business Focus (26 June 2020). Contraction is anticipated to be between 48.7% and 50.3%. That translates to 54.3 million to 56 million passengers for 2020. In 2019, the actual number of passengers was 109.2 million. Muted demand and seat cancellations were the reasons cited.

Revenue-at-risk for Malaysian and foreign carriers was estimated to be RM11.3 billion and RM4.6 billion respectively. For airport operators it is a RM0.5 billion hit.

Airline seat capacity is expected to take 3-4 years to recover given the severity of the pandemic. According to IATA, airlines face losses of USD84 billion in 2020 and losses of USD15 billion in 2021.

The path to recovery is all uphill. Debt burden, competitive pressure on fares, high fixed costs all guarantee losses. Even with a V-shaped recovery, losses are anticipated in 2021.

Airlines are counting on domestic travel primarily. Long haul flights may resume by fourth quarter of 2020. The phased re-opening will translate into passenger demand (defined as RPKs) reduced by 36% compared to January 2020.

Passenger demand is expected to recover by 55% compared to 2020, but still below by 29% on 2019 levels.

Profit margins look grim for airlines around the world.

Only 30 airlines globally were responsible for much of the airline industry gains prior to Covid-19. Now these 30 airlines are in a vulnerable state. All are trying to conserve cash. And many don’t refund your fare with cancellations – they give you a credit note instead. Imagine when you cancel a flight for a valid reason, they take your cash. And when they cancel the flight, they keep the cash and give you a credit note! So I don’t have sympathy for these people!

Reference:

1. Passenger Traffic in 2020 Estimated to Reduce Between 48.7 Per Cent and 50.3 Per Cent Year-on-Year from Record High in 2019, Business Focus, 26 June 2020

2. Airlines Will Lose $100 Billion Through 2021 Due To Coronavirus: IATA, Marisa Garcia, June 9, 2020 (www.forbes.com)