In the first quarter of 2020, Covid-19 sparked an unprecedented slump in international tourism (see Figure 1), throwing the global transportation sector into chaos. Air passenger demand nosedived by -53% m/m and by -22% 3m/3m at the end of Q1. For 2020 overall, we expect global air passenger demand to slump by -38% y/y. Global air cargo has suffered slightly less, (-15% m/m and -7% 3m/3m in Q1 2020), likely helped by the urgent need to deliver masks and medical supplies across the globe (see Figure 2).
Figure 1: Global air passenger demand and international tourist arrivals (yearly data, in millions)
Sources: OMT, FactSet, Allianz research, Euler Hermes forecasts
Figure 2: Global demand in passenger and freight air traffic (monthly data)
Sources: IATA, FactSet, Euler Hermes, Allianz Research
The year 2020 is expected to be an annus horribilis for the air industry. Our calculations made using a panel of around 80 major airlines show a collapse in revenues of more than USD300bn and a tumble in operating income of more than USD100bn in 2020. Even worse, the operating loss could top a terrible USD60bn this year (see Figure 3). We expect the air sector to retrieve USD205bn and USD75bn of revenues in 2021 and 2022, respectively, following the recovery in the world economy and international tourism. However, this will not make up for all the lost sales in 2020 alone.
Figure 3: sales and operating income of the air transport sector
Sources: IATA, FactSet, Allianz Research, Euler Hermes calculations
Though lockdowns are now gradually being lifted around the world and borders are starting to re-open, our central scenario anticipates a progressive exit lasting another six months, leading to a U-shaped recovery in 2021. Combining this GDP trend with historical air traffic data and airlines’ poor activity in the first half of 2020, we find that global demand in air transport will not return to its pre-crisis level before 2023.