The world at the end of 2020 has a substantially altered landscape from when this report was published in January of last year. At the close of 2019, the end of the so-called aviation industry supercycle – the decade of growth enjoyed by the sector – was being predicted by many.

This was despite the continued growth of air travel and the increased and abundant liquidity that was being invested into aviation assets as confidence in long-term returns continued to grow. However, while the overheated marketplace and the cyclical nature of the industry had many predicting an end to the good times, no one inside or outside the industry predicted an exogenous shock of such magnitude and global reach that the COVID-19 pandemic has wrought on the world. 

The coronavirus pandemic has decimated the aviation industry, with many airlines being effectively grounded as a result of severe restrictions on air travel, with demand being significantly curtailed. This disruption has continued into the first quarter of 2021. Despite three separate coronavirus vaccines being approved for use and being rolled out in the United Kingdom (UK), the United States (US) and the European Union (EU), with China and Russia with their own vaccination programmes, progress has been slow amid a sharp rise in confirmed cases as a new, more infectious, variants of the virus, identified in the UK and South Africa, spread rapidly across the world causing the death rate to rise once more. 

The COVID-19 global health crisis, which to date has cost almost two million lives and infected almost 90 million people, has triggered the deepest global recession since the Second World War. The global economy and per capita incomes contracted in 2020 and are predicted to remain depressed for the next year at least. The Global Gross Domestic Product (GDP) contracted 4.4% in 2020 from average growth of 2.8% at the end of 2019. The International Monetary Fund (IMF) forecasts 5.5% GDP growth in 2021 although this assumes continued monetary support from governments and fiscal lifelines for businesses. 

In its World Economic Outlook report, the IMF stresses that global growth remains at risk due to a spike in vulnerabilities, which includes the rising levels of debt countries and firms have taken on to cope with cash shortages during the pandemic crisis. Many economists expect those ongoing corporate liquidity pressures to morph into insolvencies, especially in a protracted recovery scenario. Significant downside risks include the resurgence of the virus in more countries leading to further lockdowns, causing job losses and renewed pressures on balance sheets, while the removal or reduction in central bank support may also cause market turbulence and tighten financial conditions.


Air travel demand remains tied to the global economy. The aviation supercycle showed a slight widening of the correlation between RPK and GDP growth in the decade following the global financial crisis from 2009 to 2019 leading some to suggest that the ratios had decoupled (see Airline Economics Aviation Industry Report 2018, pp8-10). There was certainly a widening of those ratios during the supercycle, which arose as a result of strong air travel growth in the emerging economies and the strengthening of airline profitability. This profitability was aided by the benign and very low interest rate environment immediately following the financial crisis, which also attracted a wave of investors into the aviation sector searching for yield. 

The yellow dotted line on Chart 1 tracks airline profitability. Prior to 2010, the airline industry had rarely made a profit but over the past decade the sector has enjoyed a sustained period of profitability peaking in 2017 with a net profit of $37.6bn. In 2019, the industry posted profits of $26.4bn despite being impacted by the grounding of the Boeing 737 MAX aircraft, geopolitical uncertainty and a general economic slowing. Chart 1 clearly shows the devastating impact of COVID-19 on RPKs, global GDP and airline profitability in 2020, demonstrating that the two measures are indeed in sync. Global RPK growth tracked the decline in GDP in 2020 and the two measures are predicted to track upwards together in 2021. Profitability will be much slower to return than travel demand due to the heavy debt burdens airline have been forced to shoulder as well as a predicted – albeit debateable – sluggish return of the more lucrative business travel segment. 

At the end of 2020, the volume of commercial flights fell 41.7% from 2019 levels. Total flights finished the year 27% below 2019 levels, according to figures from Flightradar24 (see Chart 2). Commercial traffic bottomed out in mid-April 2020 before making a moderate recovery in August before slowing again. The slow rebound occurred again in December, aided by festive holiday travel, but still remained 36.5% below 2019 levels (-39.8% in November).

The severity of the COVID-19 impact on air travel is clearly shown by tracking global RPKs, which fell by 65.6% in the Jan-Nov 2020 period compared to 2019 figures. In the six months immediately following the September 11 terrorist attack on New York – which is considered to be the most severe aviation crisis prior to 2020 – RPKs declined by just 12%, according to IATA figures. 

IATA monthly figures for 2020 show that domestic traffic began to improve ahead of international traffic as borders remained closed and quarantine measures tightened for international passengers deterring travel. That trend is continuing as domestic travel continues on a upwards trajectory with international travel recovery stalling from August.

Airlines have needed to react quickly to the rapidly changing travel environment, with various countries closing and reopening borders, imposing and changing quarantine requirements with little notice. Airlines have been required to curtail capacity quickly and yet retain the flexibility to return those grounded aircraft to the air as demand returns, all while working to reduce cash burn as far as possible. 

The average passenger load factor for the year to November 2020 is 65.5%, which is an improvement on its lowest point at 36.6% in April when much of the world was in total lockdown. Such record low levels of air travel demonstrate the stark challenge for airlines to remain solvent now and during the recovery, which is predicted to begin in Q2 2021 after the vaccination programmes in play should be largely complete, at least for those most vulnerable to the disease.


Get in touch

If you have any queries on any topic raised in Aviation Industry Leaders Report 2021: Route to Recovery, please contact Joe O'Mara of our Aviation Finance team. We'd be delighted to hear from you.