Multiple sources have reported that 2021 is expected to be a year of normalisation for the air transport industry and the overall economy. How has this year played out so far, and what are the current predictions?

The International Air Transport Association (IATA) reported that passenger demand in January 2020 has weakened further, both compared to pre-COVID levels (January 2019) and to the previous month (December 2020). Total demand in January 2021, measured in revenue passenger kilometres (RPKs), was down 72% when compared to January 2019. This is worse than the comparable decline of 69.7% experienced in December 2020. Weakened domestic demand was mainly driven by stricter domestic travel controls in China over the Lunar New Year holiday period, where total domestic demand decreased by 47.4% compared to pre-COVID levels, whereas last December, the comparable drop was of 42.9%.

As expected, international passenger demand remains at extremely suppressed levels with international passenger demand in January down 85.6% below pre-COVID levels. A similar trend as above has emerged when compared to last December, where the year-on-year drop in international demand was of 85.3%.

Despite the initiation of various vaccination programs and improved testing procedures, year-to-date figures were characterised by increased travel restrictions as several leading governments try to control the spread of the new COVID-19 variants. Naturally, the uncertainty surrounding the longevity of such restrictions also has an impact on future travel. IATA’s CEO, Alexandre de Juniac, stated that, “Forward bookings in February this year for the Northern Hemisphere summer travel season were 78% below levels in February 2019.”

Interestingly, the IATA reported that air cargo demand in January 2020 has, for the first time since the onset of the crisis, recovered to pre-COVID levels. Total demand, measured in cargo tonne-kilometres (CTKs), increased by 1.1% compared to January 2019 and a growth of 3% when compared to the previous month. In terms of global capacity (measured in available CTKs), this shrank 19.5% versus pre-COVID levels and fell 5% compared to December 2020. Such a reversal in the available CTKs reflects new capacity cuts on the passenger side.

The general operating environment remains buoyant for air cargo volumes, as conditions in the manufacturing sector remain robust despite new COVID-19 outbreaks that dragged down passenger demand. This is reflected in the global manufacturing Purchasing Managers’ Index (PMI), which came in at 53.5 last January (N.B. a result above 50 indicates growth versus the prior month). Additionally, inventory stocks levels remain relatively low compared to sales volume, therefore driving further the demand for air cargo services so that businesses could quickly restock.

Outlook: 2021 and beyond

In its latest annual review for 2020, IATA noted that the industry’s recovery is expected to be long and challenging. Global airlines are expected neither to turn cash positive until 2022 nor to see their traffic levels recover until 2024. Notwithstanding this, the latest European guide on tourism (trend & prospects - Q4/2020), is more optimistic. Such report argues that the roll-out of vaccines and improved testing procedures have provided some grounds for an optimistic second half 2021, with 2019 levels expected to be reached fully by 2023.

Naturally, the demand for short-haul flights will recover at a faster pace when compared to long-haul flights. In fact, statistics issued by China showed that within circa 6 months (September 2020), its major three airline carriers (Air China, China Southern Airlines and China Eastern Airlines) reported year-on-year domestic passenger traffic growth.

Until a solid recovery kicks-in, price volatility is still a risk in stocks exposed to this industry. Nonetheless, widespread and effective vaccines are expected to significantly boost consumer confidence, which will aid in the recovery of passenger traffic.

This article was issued by Rowen Bonello, Research Analyst at Calamatta Cuschieri. For more information visit, The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. 

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