It is no secret that the airline has been one of the worst-hit spaces by the coronavirus pandemic as air-travel demand remains pent-up. The fact that the Zacks Airline industry has declined 18.3% since the beginning of March bears testimony to its struggles.
Notably, most aviation stocks across the globe incurred losses in the recently-concluded earnings season with passenger revenues, the largest component of airlines’ top line, dropping massively due to the fast evaporating air-travel demand in the face of the plaguing global health peril. With travel restrictions still in place despite the partial relaxations, the overall picture is unlikely to improve much, if at all in the remainder of 2020. In fact, the Zacks Rank #3 (Hold) Delta Air Lines DAL, expects second-quarter 2020 revenues to plunge 90% on a year-over-year basis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IATA’s Gloomy Forecast Confirms Woes
Per the International Air Transport Association (IATA), the aviation industry is estimated to suffer loses to the tune of $84.3 billion in the current year due to the coronavirus-induced crisis, which is indicative of bearing $230 million of loss per day (on an average). With passengers still hesitating to undertake air travel as they stand the risk of contracting the disease from their fellow flyers, the research firm anticipates that passengers taking to the skies will almost be halved to 2.25 billion (roughly equal to the levels achieved way back in 2006). Moreover, the industry is projected to lose $37.54 per passenger in the current year. Passenger revenues are predicted to tank more than 150% from last-year levels to $241 billion. Further, load factor (% of seats filled by passengers) is anticipated to decline to 62.7% in 2020 from 82.5% recorded in 2019. The metric is expected to fall as the overall traffic decrease (54.7%) will exceed the capacity contraction of 40.4%.
However, the scenario is rosier with respect to cargo revenues. With air-travel demand touching rock bottom, many carriers including the likes of Delta and American Airlines AAL focused on operating cargo-only flights. Evidently, the cargo business unit of Latin American carrier Azul AZUL registered a 36% increase in first-quarter 2020 revenues. IATA expects cargo revenues to climb 8.2% year over year to $110.8 billion in 2020. Moreover, cargo revenues are expected to account for 26% of the top line in 2020 compared with a mere 12% in 2019. Despite the rise in cargo revenues, the overall top line is feared to shrink 50% to $419 billion from the 2019-level.
The other bright spot in IATA’s 2020 forecast is the sharp drop in fuel prices per gallon. Notably, jet fuel price is expected to slump to $36.8 per barrel in 2020 from the 2019 reading of $77/barrel. However, the entire benefit of this steep descent will not be realized by airlines as a substantial portion of the fleet remains grounded due to low air-travel demand. This downside can be highlighted by the fact that fuel expenses are likely to account for 15% of total costs compared with 23.7% in 2019.
The forecast of 14.1% jump in non-fuel costs also mars the advantage of low fuel costs. Non-fuel expenses are anticipated to escalate in 2020 due to fixed costs being spread over fewer passengers.
Region-wise, North American carriers are projected to endure net loss of $23.1 billion in these coronavirus-ravaged times with traffic plummeting 52.6%. European carriers including Ryanair Holdings RYAAY are expected to incur $21.5 billion losses. Latin American carriers with the likes of Azul, Copa Holdings CPA and Gol Linhas GOL are projected to lose $4 billion. However, those in the Asia-Pacific area are expected to incur maximum losses ($29 billion). Notably, coronavirus originated from this region (China to be precise).
With negatives abounding, it was small wonder that Alexandre de Juniac, director general and CEO of the research firm, stated that “Financially, 2020 will go down as the worst year in the history of aviation”. On a positive note, Juniac assured that “Provided there is not a second and more damaging wave of COVID-19, the worst of the collapse in traffic is likely behind us”.
2021: Sunnier Days Ahead
With passenger demand slowly resuming normalcy after the coronavirus carnage, total loss for the industry is envisioned to come down to $15.8 billion next year (nearly $5 per passenger). This improving scenario is backed by IATA expectation of 3.38 billion people taking to the skies in 2021. Such slow pace of the recovery is understandable from the fact that the 2021 projection is way below the 4.54-billion passengers flown in 2019. With cargo revenues likely to surge further to $138 billion coupled with bettering air-travel demand, overall revenues are anticipated to soar 42% to $598 billion from the 2020 estimate.
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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report
Delta Air Lines, Inc. (DAL) : Free Stock Analysis Report
Gol Linhas Aereas Inteligentes S.A. (GOL) : Free Stock Analysis Report
American Airlines Group Inc. (AAL) : Free Stock Analysis Report
Copa Holdings, S.A. (CPA) : Free Stock Analysis Report
AZUL SA (AZUL) : Free Stock Analysis Report
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