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COVID-19 Bailouts Moving Up Share Prices in Crippled Aviation Industry

23 May, 2020

On  May 20, 2020, International Air Transport Association (“IATA”) released the Airline Financial Monitor Report (“Report”)  including its observations for March and April, 2020 stating that “Global airline share prices moved higher in April, reflecting government support to the industry and airline announcements about restarting part of their operations”.

The calculation on revenue passenger kilometers (“RPKs”) is highly worth to take into account as for the airlines, since it puts forward the demands of passengers for air travel services. Generally, high numbers of RPKs figure a positive frame for airlines. However, in case the numbers are low, it is more disquieting for both airlines and the aviation industry. 

In light of the foregoing, IATA stated that the drop in the numbers of RPKs has hit its lowest point in March which of those numbers were last seen in 2006. Therefore, in the wake of COVID-19, the decline in RPKs pulls down the industry overall.  Likewise, as per the financial outcomes for the first quarter of 2020, the Report also confirms the concrete deterioration in the industry-wide profitability due to COVID-19 outbreak. The Report adds a further analysis that “The outcome was driven by Asia Pacific airlines, however earnings before interest and taxes margins also deteriorated in Europe and North America”. 

As per the Report, the financial margins present an overall healing picture in the industry, especially for Asia Pacific and European airlines with almost 8% increase in airline share price compared to the results in March. In the North Americas region, even though the equities are still falling, the fall is less high than the previous month. Admitting the fact that the industry is rising in comparison with the previous months, the numbers are yet to be catch the levels in 2019.

According to the analysis of the Report, as the worldwide economy starts to reopen, the fuel prices are surged. Despite of the fact that the fuel prices are risen in comparison with the previous months, the demand still could not reach the level of the beginning of 2020 with almost a 50% low scale. To look at further, IATA anticipates that the future scale of the fuel prices depends on the future spread and growing of COVID-19.

The passenger demand outcome proves that in March, the drop was extensive with more than 50%. While the pandemic grows, its impacts become even more unforeseeable with the restrictions and lockdowns enforced around the globe so that these cause the future estimations to exhibit a darker picture day by day. However, IATA underlines the slow start of the flight operations as in China brings the market to a more alive atmosphere but with a delay.

IATA also scrutinizes air cargo which became quite popular by the airlines seeking a way-out due to expanding restrictions on passenger travel and extra cautious environment (Please see our article for further information on passenger confidence in air travel amid COVID-19 http://herdem.av.tr/covid-19-considerations-of-iata-for-air-travel ). To this end, IATA pinpoints that, the passenger and cargo transport indicate opposite trends, where most of the cargo load factor is driven by Asia.

Lastly but most significantly, the results set forth that more unutilized aircrafts are put in storages which reveals the fact that “roughly 2/3 of the global commercial fleet was grounded by the end of April”. As a result, “new aircraft deliveries were almost nonexistent in April”.

Şafak Herdem & Ezgi Aysima Kır & Aslı Naz Ünlü

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