COVID-19 Outlook for Air Travel and Air Cargo Markets

COVID-19 Outlook for air travel and air cargo markets

Brian Pearce

Chief Economist 8th June 2021

1 Demand shocks do not usually have long-lasting impacts Previous shocks cut 5-20% from RPKs but recovered after 6-18 months

Global passenger kilometers flown (RPKs), indexed 120 2003 SARS 1991 global Sep 11 2001 pandemic recession terrorist attacks 100 2009 Great Recession 80

COVID-19 40 pandemic

20 Indexed, 100 = RPKs = Indexed, shock RPKs 100 of at start 0 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Months after start of shock

Source: IATA Economics using data from IATA Monthly Statistics. Data is adjusted for seasonality. Structural change in aviation driven by the supply-side Technology, liberalization & innovation drove unit costs down 90%

Unit cost of air transport, US$/ATK, inflation-adjusted 4.0 Boeing 707 3.5

3.0

2.5 1973 oil US airline market 2.0 crisis deregulation

1.5 EU airline market deregulation Great Recession 1.0 COVID-19

0.5 US$ 2017 in prices fly to tonne a kilometer 0.0 1950 1960 1970 1980 1990 2000 2010 2020 Source: IATA Economics using data from ICAO, IATA Statistics and OECD Global economy already back above pre-crisis output Global industrial production and trade 2% above 2019 levels by February

Global industrial production and cross-border trade, indexed 105

Global industrial 100 production

95 Cross-border trade

90 Index, Jan Index, = 100 2019 85

Source: IATA Economics using data from ICAO, IATA Statistics and OECD Record high for air cargo tonne km flown in March Cargo tonne km (CTKs) flown rise 4.4% above pre-crisis March 2019 level Cargo tonne km flown, billion per month 25 24 Cargo tonne km 23 flown 22 21 20 19 18 Adjusted for Billionper month 17 seasonality 16 15 14 13 2016 2017 2018 2019 2020 2021

Source: IATA Economics using data from IATA Monthly Statistics Yields and loads elevated due to capacity shortage Load factors around 10% points and yields 50% higher than normal Global air cargo load factor and yield 3.6 62% 3.4 Air cargo yield (incl. fuel and other surcharges) 60% 3.2 58% 3.0 56% 2.8 2.6 54%

2.4 Air cargo load factor 52%

US$kilo per 2.2 50% 2.0 48% 1.8 of % available cargotonne km 1.6 46% 1.4 44% 2016 2017 2018 2019 2020 2021

Source: IATA Economics using data from IATA Monthly Statistics and CargoIS Airline performance depending on trade lane exposure N American airlines strong growth in air cargo, in contrast to L America

International cargo tonne km flown, seasonally adjusted 130

120 North America Middle East 110 Europe 100 Asia Pacific

80 Latin America

70 Indexed, Indexed, Jan 2020 = 100

Source: IATA Economics using data from IATA Monthly Statistics Strong evidence of pent-up demand for leisure air travel Latest evidence from surge of UK bookings for air travel to ‘green list’ 2021 vs 2019 bookings from the UK, 7-day moving average Green list: Gibraltar, 60% Iceland, Portugal

40% May 7th: UK traffic light 20% list is announced

0% Amber list: France, -20% Germany, Greece, Italy, Spain -40% Red list: Turkey, UAE

-60%

-80%

-100% 7-Apr 14-Apr 21-Apr 28-Apr 5-May 12-May Source: IATA Economics using data from DDS Vaccination should allow staged reopening of air travel Widespread vaccination should allow some key market to open in H2 Airfinity's vaccination rollout forecast High risk & healthcare 50% population 75% population Brazil

China

Japan

Australia

France

Germany

Canada

Jan-21 Apr-21 Jul-21 Oct-21 Feb-22 May-22 Aug-22

Source: IATA Economics using forecasts from Airfinity Science Tracker https://science.airfinity.com/covid-19-science-macro as of 11 May 2021 Different markets will recover at different paces Recovery profile dependent on restrictions, vaccination, risk-aversion Some key domestic and country-pair markets, index 2019 = 100 160

140 China dom. Brazil dom. 120 US dom. India-UAE 100 China-Japan US-UK Germany-Spain 80

60 Index, Index, 2019= 100

0 2019 2020 2021 2022 2023 2024 Source: IATA Economics using data from Tourism Economic/IATA Air Passenger Forecast, April 2021. COVID-19 boost East-shift of air travel centre of gravity Temporary shift East to where we forecast centre of gravity in 20 years

Source: IATA Economics using data from TE/IATA Air Passenger Forecast, April 2021 Our baseline view is a long-term loss of 2 years growth Strong rebound when border travel barriers removed but not full recovery Global O-D passengers, billion January forecast April forecast Pre-covid forecast 7.0

6.0 -7% ~2 years lost 5.0

4.0 CAGR: 3.9% 2023: 105% of Billion 2x every 19 years 2019 level 3.0 2022: 88% of 2019 level 2.0 2021: 52% of 2019 level 1.0 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Source: IATA Economics using data from Tourism Economic/IATA Air Passenger Forecast, April 2021. But there are other scenarios International air travel recovery not yet visible or certain

International air passenger departures, origin-destination count 3 Upside scenario: faster vaccine rollout 2.5

Baseline forecast 2

1.5 Billion

1 Downside scenario: vaccine ineffectiveness and high testing costs 0.5

0 2015 2020 2025 2030 2035 Source: IATA Economics using data from Tourism Economic/IATA Air Passenger Forecast, April 2021. Contacts [email protected] www.iata.org/economics