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European Airlines Face a Harder Recovery Than Their Rivals

This content was published on November 25, 2020 - 16:26

(Bloomberg) -- Europe’s airlines will struggle more than competitors elsewhere to end losses next year as they’re held back by higher expenses and their dependence on overseas routes, according to the International Air Transport Association.

The region’s carriers should achieve seat-occupancy levels averaging 63.8% for the whole of 2020, increasing to 65.6% in 2021. That’s still below the projected break-even load factor of 71.9%, IATA said in a presentation Wednesday.

European airlines are expected to post a combined loss of $11.9 billion in 2021, the sharpest deficit among six regions and corresponding to almost one-third of the global tally. The loss in 2020, while wider, will rank well behind those in North America and the Asia-Pacific, equaling 23% of the total, IATA says.

Europe’s recovery will be tougher because of the high break-even barrier resulting from the cost of doing business, said Rafael Schvartzman, IATA’s vice president for the region, citing recent increases in air-navigation fees in nine nations. A reliance on international revenue has also left Europe’s carriers more vulnerable when countries impose anti-pandemic lockdowns, meaning stronger sales won’t arrive until later in 2021.

The probable early distribution of Covid-19 vaccines in Europe means the aviation restart could get a boost, though only if the region adopts a harmonized approach that’s so far been lacking, Schvartzman said.

IATA Chief Economist Brian Pearce said separately that global air-cargo volumes will probably increase 13% next year as companies turn to planes as the quickest way of restocking after the crisis, with demand also buoyed by an impending airlift of coronavirus vaccines.

Cargo will likely contribute one-third of total airline revenues this year and next, reflecting the sustained decline in passenger flights and relative health of the freight market, Pearce said.

Cargo traffic is currently down 8% from 2019 levels, based on the most recent IATA figures, held back by a lack of passenger-jet hold space as airlines trim routes. That compares with a 72.8% drop in passenger traffic. The lack of capacity has pushed freight yields -- a measure of prices -- up 60%.

(Updates with cargo projections starting in sixth paragraph)

©2020 Bloomberg L.P.

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