Stock - (Delta) Airlines
Airlines better managed their costs during the final three months of 2020, but shocks and surprises lie in wait. Image Credit: Bloomberg

Dubai: Global airlines were able to trim some of their losses in the fourth quarter of 2020 due to cost-cutting measures and “robust” cargo revenues, according to International Air Transport Association (IATA).

While carriers in all regions continued to report losses due to the ongoing impact of the pandemic, these were “steadily narrowing down” despite the worsening outlook on passenger traffic. “It is important to note that this is mostly due to the rigorous cuts in capital expenditures and operating costs since revenues are still less than half of their level in the first quarter,” said IATA in a new report.

“We expect air travel demand to gradually revive in the second-half of 2021 following a weak first-half,” said IATA. “Hence, airlines will continue to focus on limiting losses by implementing cost-cutting measures and preserving cash balances.”

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Passenger revenues

IATA’s data indicates that passenger revenues remained weak (down 73 per cent year-on-year) in the fourth quarter as recovery in demand stalled. On the other hand, cargo revenues were strong (up 53 per cent year-on-year). While ongoing economic recovery and seasonal shopping days were supportive for cargo demand, capacity limitations kept cargo yields at elevated levels.

Oil's rise

Oil and jet fuel price further strengthened in February, reaching pre-pandemic levels, noted IATA. The industry body said that airlines will face higher costs once the recovery starts as fuel is the largest variable cost for operators. “Airlines in general did not engage in fuel hedging in 2020 due to significant hedging losses incurred with the collapse in prices last year,” it added.

Hedging is a contractual tool used by companies in large fuel consuming industries such as airlines, cruise lines and trucking companies, to reduce exposure to fluctuating prices.

Unrelenting on yields

Global base passenger yields - average revenue received per paying passenger flown one mile - trended downwards in November and December as airlines tried to stimulate stagnating demand due to rising travel restrictions. They are 2 per cent lower than their level a year ago in December, said IATA. While economy cabin yields trended downwards, premium passenger yields improved in December, it added.

“Passenger yields are expected to soften as forward bookings remain limited due to uncertainties related to travel restrictions,” the industry body concluded.