IATA’s View of Future Air Travel: Will We Ever See Pre-Covid19 Demand?


In January of 2020, the world became increasingly aware of the novel-Covid-19 that easily spread with symptoms similar to pneumonia. As countries looked for ways to blunt the lightning fast spread rolling out travel restrictions became one of their go to tools. But what’s IATA’s view of the future? 

The pandemic has led to prolonged travel restrictions and a decline in consumer confidence levels which has decimated the revenues of airline companies. Government officials have mentioned that most airports have seen passenger levels drop by 91% from last year. 

ICAO (the International Civil Aviation Organization), a UN agency, informed us that the Asian Pacific region was the first to experience significant capacity reductions. These reduction started in mid-January. All other regions reduced capacity in mid- March.

While the impact differed slightly by region, airline industry global passenger seat capacity plunged between 57% and 64%. In April 2020, global revenue passenger kilometers, ‘a measure of passengers flown over x number of kilometers’ dropped 94% from April of 2019.

Starting in late April capacity began to improve sluggishly in many domestic markets. However, growth in international travel which crashed slightly over 98% was exceedingly sluggish, in fact almost flat lined.

IATA (the International Air Transport Association) paints a grim and uncertain picture for airline industry’s recovery. Not only because of the virus but the economic damage caused by the virus.

Who are these organizations anyway?

  • IATA an airline industry trade association based in Montreal, Canada, that does significant economic studies, market analysis, and forecasting of the industry. They are frequently quoted in the press.
  • ICAO was started in the 1940s promotes the growth of aviation, is involved with aviation safety, navigation, and much more.

This all begs the question, when will these airlines come back to pre-Covid-19 levels?

Let’s think about opportunity cost for airlines the way we do at your favorite bakery.

That cinnamon roll, cooked fresh at 2a.m will be nice, soft, and sellable for most of the day. Tomorrow it will be as hard as a rock, not really sellable, and at some point, thrown away.

When you watch a plane, taxi off the gate, every empty seat, and every cubic foot of cargo space unsold is spoiled inventory. That inventory, like the rock hard-cinnamon roll can never be sold again.

This should help us understand the capacity versus seats sold a bit more clearly. It also helps us understand the loss in revenue. We also need to remember that there is a fixed cost for airplanes. Those debt payments continue even though the planes are grounded.

There may be variable costs related to maintaining aircraft that are parked.


Metrics We Use

Aside from US dollars and percentages. We look at some usual airline metrics to help evaluate the industry. Many experts use the term load factor. This is nothing more than a percentage of seats sold. Different airlines have different breakeven load factors.

As an investor, load factors tell you the performance of flights flying.

If the breakeven load factor for an airline is exceedingly high relative to the industry, which can signal to the investors that the airline may not be very efficient – and in the end – not very profitable. This metric informs about the efficiency of the present schedule.

One caution, a weakness in this metric may come from temporary emergency regulation. Governments may, under Covid-19, regulate the percentage of seats that can be filled. If that occurs, load factor will not inform us about natural market conditions, or airline efficiency.

Also, not all governments will regulate their domestic markets the same. That means that load factors may not be the best means of comparing performance between airlines right now.

Two other common terms IATA uses “RPK and ASK” . RPK means revenue passenger kilometers, ASK means available seat kilometers.

A single RPK simply means a revenue passenger flown one Kilometer. A single ASK is the available seat traveling one kilometer.

ASK and RPK gives us some insight into the market.

It should be mentioned here that looking at air freight is a topic for a separate article or even PhD. While passenger sales were improving globally 2018 and 2019, cargo load factors dropped globally in 2019. The amount of the decrease varied per market this was not specific to Covid-19.



Pre-Pandemic vs now, how far the mighty have fallen?

To put the damage the virus has wrought in perspective, we need to understand where we should have been. Prior to the pandemic ICAO reported in their August 12th publication original capacity should have exceeded 500 million by mid-June 2020.

Instead, total passengers just broke 100 million by the end of June 2020. Meanwhile, global capacity, the number of seats available broke 100 million in mid-May 2020.

The difference in capacity is what is sitting on the ground.

Load factor on a global level from 2015-2019 averaged 81.36%. IATA estimates that load factors globally will decline to 62.7% by the end of 2020.

Passenger growth in revenue passenger-kilometer grew on average 6.9% with the best year in 2017 and the worst in 2018.

The forecast growth in 2020 is “-54.7%” – IATA.




A glimpse into the future.

IATA, in their “Economics Chart of the Week” published 30 July 2020, cautiously estimates that in terms of RPKs, 2019 levels are recovered by 2024. The forecasts are clouded by both Covid-19 and general macroeconomic conditions, which are also concerns related to passenger forecasting.

IATA believes that as travel restrictions abate the demand for leisure travel will emerge. That said, they revised down their “next five-year forecast” over concerns about business travel demand.

As of the end of June in various domestic markets, in a year-over-year monthly comparison RPKs were off 67.6%. This is a 10% improvement over May’s year-over-year percentage.

The year-over-year monthly comparison internationally paints a darker picture, that is down nearly “100%” again last month.

Continued travel restrictions are seen as the cause. There is a glimmer of light, IATA states there are “tentative signs” of more flights since the close of June.

As we digest this information, we see a story of two airline industries. Aside from air freight sales, we see a robust, healthy profitable industry.

Prior to the mid-March Covid-19 shutdowns there were articles that opined concerns of pilot shortages. After Covid-19 made inroads, we saw an industry in collapse.

The worldwide shuttering of most airline operations, billions in revenue lost, and fleets of airliners parked. The once high demand for passenger flights is now much smaller relative to overall potential capacity.

IATA, who puts out monthly analysis of passenger travel shows us that slowly, capacity and passengers to fill it are returning. Now airlines face the second potential risk of economic slow downs that may further the delay of their return to 2019 levels.

Entire economies witnessed reduced economic activity during the shutdowns. It does however seem clear: Airlines are marching back as restrictions on travel slowly lift.

People still seem to want to fly.


William Ward Jr.
William Ward Jr.

Bill holds a MS in Finance with a Capital Markets concentration and has invested in both equity markets and forex for the last decade. In the past, Bill has worked in the airline industry as a Station Manager. Working in middle management for small airlines helped him develop a deep understanding of the economics and operational environment of the airline industry. Bill also worked as a manager in the clothing industry setting up and managing Mill Outlet retail stores across the US, where he developed a strong understanding of the retail business. In the mid-80s Bill was an entrepreneur running two video retail stores for ten years while attending University. He later worked for Gateway Computers as a PC technician and thereafter opening his own PC Business. Through these experiences, Bill is able to leverage his deep knowledge and provide unique investing insights. When he is not working, Bill dabbles at golf, spends time with his yellow lab Killian, and gives back to his community by helping solve municipal issues.