Airlines Financial Monitor | November-December 2020 |
Key points |
- Our final Q3 financial results show that airlines continued to suffer from very weak travel demand and burnt cash, albeit at a slower rate compared to Q2 with the help of cost cutting measures and robust cargo revenues. Initial Q4 2020 earnings announcements indicate that airlines continued to burn cash as the recovery in demand stalled. However, the vaccine news makes us estimate that airlines could achieve cash break-even towards the end of 2021.
- The global airline share price index rose in December but still lagged wider equity markets as the resurgence of the virus weighed on the travel demand recovery. Looking forward, the widespread availability of vaccines and implementation of successful testing regimes will be key for the recovery in travel demand and airline share prices.
- Oil and jet fuel prices went up in January on the back of U.S. fiscal stimulus expectations. However, the near-term outlook for global jet fuel demand is still uncertain as lockdowns and border closures to contain the pandemic remain in place.
European airlines supported the global airline equity index in December
Airline Share Prices
Index | % change on | |||
US$ indices (Jan 2014=100) | Dec 31st | one month | one year start of year | |
World airlines | 94.4 | +2.9% | -30.2% | -30.2% |
Asia Pacific airlines | 77.5 | -2.4% | -29.5% | -29.5% |
European airlines | 85.2 | +9.6% | -24.7% | -24.7% |
North American airlines | 115.0 | +0.9% | -31.5% | -31.5% |
FTSE All World $ | 165.0 | +4.5% | +14.1% | +14.1% |
Index (Jan 2014=100)
160 | ||||||
140 | ||||||
120 | ||||||
100 | ||||||
80 | ||||||
60 | ||||||
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
FTSE All World $ | World airlines $ |
Source: Refinitiv Eikon Datastream
- Following the vaccine rally in November, airline shares with the exception of European airlines underperformed wider equity markets in December. While the expectation of fast rollout of vaccines is reflected positively in European carriers, Asia-Pacific airline shares declined as the resurgence of the virus halted the recovery in demand in main Asian markets.
- Overall, global airline shares ended the year 2020 down by 30% diverging from the wider equity markets (+14.1%) as the pandemic caused travel demand to plummet. 2021 will also be a challenging year for airlines. The widespread availability of vaccines and implementation of successful testing regimes will be key for the recovery in travel demand and share prices.
Airline industry continues to report deep losses and cash burn
Airline Financial Results | • Latest airline financial data for Q3 shows that airlines in | |||||||||||
Number of | Q3 2019 | Q3 2020 | all regions posted another quarter of net loss. While | |||||||||
airlines in | Regions | EBIT | Net post-tax | EBIT | Net post-tax | North America reported the largest net loss, Asia-Pacific | ||||||
sample | margin1 | profit2 | margin1 | profit2 | airlines' net loss declined compared to the previous | |||||||
27 | North America | 11.7% | 5,433 | -43% | -10,975 | |||||||
quarter amid the recovery in large domestic markets | ||||||||||||
29 | Asia-Pacific | 6.3% | 485 | -41% | -5,647 | |||||||
and the strong cargo revenues. | ||||||||||||
15 | Europe | 17.3% | 6,076 | -45% | -8,095 | |||||||
8 | Latin America | 11.2% | 2 | -94% | -1,772 | • The industry continued to burn cash in Q3. Net cash | ||||||
4 | Others | 17.0% | 220 | -83% | -234 | |||||||
83 | Sample total | 12.1% | 12,216 | -45% | -26,723 | outflow from operating activities rose to 51% of | ||||||
1% of revenues | 2US$ million | revenues as the decline in operating costs was not | ||||||||||
Sources: The Airline Analyst, IATA | enough to compensate for the revenue loss. Capital | |||||||||||
Airline Cash Flow1 | expenditures rose to 14% of revenues although airlines | |||||||||||
Number of | Q3 2019 | Q3 2020 | were deferring aircraft deliveries. Among all regions, | |||||||||
Asia-Pacific was in a relatively better position in limiting | ||||||||||||
airlines in | ||||||||||||
Regions | Net cash | Capex | Free cash | Net cash | Capex | Free cash | ||||||
sample | flow2 | flow | flow2 | flow | free cash outflow. | |||||||
13 | North America | 12.4% | 8.8% | 3.6% | -68.8% | 20.6% | -89.4% | |||||
• Looking forward, airlines will continue to suffer from | ||||||||||||
24 | Asia-Pacific | 9.7% | 11.2% | -1.5% | -17.0% | 4.6% | -21.5% | |||||
11 | Europe | 8.8% | 9.6% | -0.8% | -61.0% | 14.5% | -75.5% | subdued demand and turning cash positive will be the | ||||
6 | Latin America | 12.4% | 8.5% | 3.9% | -46.6% | 14.3% | -60.9% | |||||
4 | Others | 16.6% | 8.2% | 8.4% | -46.6% | 21.8% | -68.4% | key target for the industry. We see a possibility of | ||||
58 | Sample total | 10.8% | 9.5% | 1.3% | -51.4% | 14.1% -65.6% | turning cash positive at aggregate level in Q4 but until | |||||
1% of revenues | 2From operating activities | |||||||||||
then further support for survival from governments will | ||||||||||||
Sources: The Airline Analyst, IATA | ||||||||||||
be critical for survival. | ||||||||||||
1 | IATA Economics:www.iata.org/economics |
Matching costs with lower revenues remains a challenge
Operating revenues and cost changes in Q3 2020
40% | |
year-on- | 20% |
0% | |
year | -20% |
change | -40% |
-60% | |
% | |
-80% | |
-100% |
Passenger Cargo | Total | Total | Fuel | Landing & | MRO | Labour |
Revenue | Cost | user | ||||
charges |
- Airlines in all regions posted sharp declines (-80%) in passenger revenues in Q3 2020 as the recovery in air travel demand was limited, and airlines aimed to stimulate demand by lowering fares.
- On the other hand, cargo revenues were strong since the economic activity rebounded quickly during post lock-down period. In addition to the rebound in cargo demand, cargo yields soared since the recovery in belly cargo capacity was limited and the conversion of passenger aircraft to cargo aircraft was not enough to compensate the loss in belly cargo capacity. As a result, cargo revenues in our sample of airlines improved by 17% year-on-year.
- Reducing operating costs was the main focus of airlines since the pandemic hit. However, the decline in operating costs (-43% in our sample) was much lower than the loss on the revenue side (-66% in our sample). Variable costs such as fuel and selling distribution declined in parallel with the loss in revenues. Also, airlines took initiatives to reduce their fixed or semi-fixed costs, e.g. employment costs were reduced by 27% in 3Q20 compared to 3Q19.
Oil and jet fuel price rose on U.S. fiscal stimulus expectations
US$/bbl
160 | ||
140 | ||
120 | Jet fuel (LHS) | Weaker US |
dollar, higher oil | ||
100 | prices | |
80 | ||
60 | ||
40 | Brent crude oil (LHS) | US dollar trade- |
weighted index (RHS) |
20
2013 2014 2015 2016 2017 2018 2019 2020 2021
Sources: Platts, Refinitiv Eikon Datastream, as of January 12th
- Oil and jet fuel price further strengthened in January amid hopes that the new U.S. administration would
95 announce a stimulus package that would be supportive
100 | for oil demand. At the time of writing, Brent crude oil and |
the jet fuel price were US$56/bbl and US$61/bbl, |
105 | respectively. |
110 • Despite the recent strengthening in prices, lockdowns
115 and border closures to contain the pandemic remain in
120 | place, raising concerns about the near-term oil demand. |
Taking into account weaker demand prospects in the |
125 | near future, OPEC+ decided to delay a further easing of |
130 supply cuts in January. Although the recovery in oil
135 demand is fragile in the near-term, a widespread vaccination and an acceleration in economic activity is expected to support demand in the second half of the year.
IATA Economics
economics@iata.org
21st January 2021
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2 | IATA Economics:www.iata.org/economics |
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IATA - International Air Transport Association published this content on 21 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 21 January 2021 10:33:03 UTC