Airlines forecast to fly into bigger losses on new Covid variants

Airlines are expected to make significant losses this year as International Air Transport Association (IATA) revises its forecast issued in December because of challenges in containing new coronavirus variants and slower vaccination in some regions.

IATA is projecting a post-tax losses of Sh5.1 trillion ($47.7 billion) in 2021 from their initial Sh4 trillion ($38 billion) projection in December.

“Financial performance will be worse and more varied this year than we expected in our December forecast, because of difficulties in controlling the virus variants and slower vaccination in some regions,” said IATA.

According to IATA, large airlines have raised sufficient cash to cover for these losses with the aviation sector expecting a cash burn of Sh8.6 trillion ($81 billion).

“Many smaller airlines haven’t and will need government aid or to raise more cash from banks or capital markets – adding to the industry’s debt burden and balance sheet leverage problem,” the agency said.

Kenya Airways and other regional carriers such as RwandAir have suspended flights to India due to high cases of Covid-19 in this Asian country.

The airlines woes will be compounded with the rising cost of fuel, which is expected to have a negative impact on the airlines.

“We now expect much higher fuel prices with jet at $68.9 per barrel from $49.5 and oil rising to $64.2 per barrel from 45.5 previously as the stronger global economy pulls all energy prices higher,” IATA said

The worst point of the impact of Covid-19 on airline profitability was in the second quarter of last year, when operating losses were more than 70 percent of revenues. Cost cutting and a strong cargo business helped reduce losses in the second half of 2020.

However, many airline costs are fixed over short periods and hard to avoid. As a result, losses were reduced only to around 50 percent of revenues by the last quarter of 2020.

Sharp decline on summer bookings saw Kenya Airways losses nearly triple to Sh36.2 billion in the year ending December 2020 as the carrier sank deeper into the red following a slump in passenger numbers occasioned by Covid-19.

IATA said cargo remains a very strong business for airlines in 2021 as the strong economy and restocking is driving an increase in share of world trade, with 13.1 percent growth in volumes, which is higher than the World Trade Organisation forecast growth for global trade of eight percent.

African airlines’ cargo demands in February increased by 44.2 percent compared with the corresponding period in 2019 marking the strongest growth of all the regions, according to International Air Travel Association (IATA).

Source: Business Daily

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