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U.S. Inability To Control Coronavirus Outbreak Threatens Path Of Airline Recovery

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IATA’s update on airline performance for May, and forecast of the recovery through the end of this year, show moderate improvements in some regions. But the path of recovery for the industry could be threatened by the high number of coronavirus cases in the U.S.

Indeed, the U.S. has been excluded from the list of countries of origin admitted for international travel in Europe, due to the high number of coronavirus infections in the U.S..

The high number of coronavirus infections groups the U.S. with the world’s emerging economies, where the restart of international air travel may be delayed through the end of the year. That delay in re-starting service will impact all airlines that rely on routes to and from the U.S.

IATA has adjusted its projections for 2020 (which previously reflected a December 2020 demand, as RPKs, 36% lower than December 2019) to include an extended closure of international air service to emerging markets and the U.S.

The airline association’s new model shows that overall demand would be down by 53% by December of this year, compared to 2019, unless the health crisis in emerging markets and the U.S. improves dramatically.

The EU’s decision to exclude the U.S. from list of origin countries authorised to visit the region comes at a cost, particularly for EU airlines which rely more on international service than their U.S. counterparts, Brian Pearce, IATA’s Chief Economist explained.

“The EU, including the UK to the U.S. [was] a $29 billion market..in 2019, so roughly 5% of global revenue,” he said.

All time low load-factors

For now, the airline industry is relying on domestic travel and so-called travel bubbles—limited openings of international routes between countries with low rates of coronavirus infections.

But IATA’s May 2020 figures suggest that demand alone will not help airlines cover their costs of operations.

Airlines are having trouble filling their passenger aircraft, and reaching break-even load factors; the regions of Europe, North America, the Middle East and Africa are all experiencing all-time low passenger load factors.

The exception is the domestic air travel market in China, where passenger load factors were still low, but more sustainable in May at 68.8%.

June numbers do not bode well for airline industry resilience to rising Covid-19 cases

Also worrying, though perhaps predictable, the bookings performance reported for the month of June show the industry is still very vulnerable to change in the number of coronavirus infections.

Bookings rose slightly; they were down by 77% in June 2020 compared to June 2019, and had been down 86% compared to 2019 in May. But June bookings began to decline as new Covid-19 cases were reported.

Airlines continue to be in a battle for survival during this pandemic. They need countries to flatten their curves, and keep the number of infections low, while simultaneously allowing for greater freedom of movement. It may be a tall order for anyone to satisfy.

The pathway to recovery is also affected by confidence. While overall business confidence has increased, it is not resulting in higher business travel, Pearce reported, and corporate travel demand is still weak.

Consumer confidence, which drives leisure travel demand, is also weak. Though it is higher in the U.S. than other regions, which might at least sustain domestic U.S. travel.

IATA announced that it will be publishing the results of a recent consumer survey, which may better inform any projections of recovery in leisure demand, during its briefing next week.

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