Airlines in Latin America will lose more than 8 billion due to COVID-19

Mexico and Brazil have recovered best, with an increase of reservations in December

The airline industry has been decimated by the COVID-19 pandemic. Many airlines have been hurt financially while others have stopped operating altogether. JETS, an exchange-traded fund, a composite index of many of the leading stocks has seen a decline of more than 50% during the year, although it already started to climb up.

Connectivity worldwide will be fundamentally transformed, some of the biggest players have seen great declines. London, the world’s number one most connected city in September 2019, has seen a 67% decline in connectivity. By September 2020, it had fallen to number eight.  Shanghai is now the top-ranked city for connectivity with the top four most connected cities all in China—Shanghai, Beijing, Guangzhou and Chengdu.  New York registered a -66% fall in connectivity, Tokyo -65%, Bangkok -81%, Hong Kong -81% and Seoul -69% have all exited the top ten.  

Meanwhile, airlines in Latin America are projected to lose between USD 8.3 billion by the end of 2021, and the industry will have to reconfigure with new slots opening up and the fear of passengers continuing to hamper travel. The first quarter of 2021 could see a positive climb with the distribution of vaccines, the full recovery will take many months. The International Air Transport Association (IATA) expects that international borders will gradually reopen.

By the end of this year, IATA estimated that the Latin American region’s airlines would accumulate losses of up to 5 billion dollars. Next year, losses are expected to be around 3 billion dollars, and confidence starts to build up, for a total of 8 thousand 300 million dollars, between 2020 and 2021.

While this year will be the worst-performing for airlines, 2021 will still keep Latin America’s commercial airline numbers in the red. Peter Cerdá, IATA vice president for the Americas, explained that the airline industry started to show resilience, with the correct application of biosafety protocols. However, he acknowledged that the permanence of quarantines and the closure of borders further complicate companies’ situation in the region. We have made progress, but we still need our governments, especially with the removal of barriers and quarantines,” Cerdá said in the most recent IATA report.

Mexico and Brazil, with better performance

The outlook is slightly better for Mexico and Brazil, the two largest economies in the region, due en part to the fact that they did not close their air borders, leaning towards maintaining minimal domestic and international markets. In Mexico’s case, flight bookings as of December 19 registered a drop of 47.7 percent, while for Brazil, the drop is 54.4 percent, compared to the same season last year. Reservations are still far below the pre-Covid-19 level.

Mexico and Brazil’s casualties are small compared to the 78.7 percent drop in Bolivia, 76 percent in Paraguay and 74 percent in Argentina. IATA revealed that the outlook is not encouraging for countries such as Argentina, Colombia or Peru, which closed their air borders for almost seven months, limiting connectivity with other intraregional destinations, in addition to other European destinations.

Before the pandemic, Latin America and the Caribbean had a connection to a thousand 780 cities by air. The pandemic reduced connectivity by more than 60 percent at the critical moment of the crisis. The damage will continue to be present and will still be severe.

On the other hand, seven Latin American countries keep their operations open but they request passengers to have a test before flying, a protocol that does not encourage air activity. Bolivia, Panama, Peru, Costa Rica, Chile, Ecuador and Nicaragua have reservation levels below 50 percent compared to December 2019. Peru is one of the countries that have been most affected by air border closures, in addition to the obstacles installed to enter through a flight.

Even with the slow recovery in demand levels, the truth is that airlines will need more government help to survive the following months, in which they will continue with a decrease in liquidity. The region has less government support than is required and therefore the risk of disappearance of companies and loss of jobs remains high.

If the losses continue, at least 4.5 million direct and indirect jobs could be affected. The airline industry contributes to the region’s GDP in 110 billion dollars. Government support has kept the airlines alive until now. More is likely to be needed, as the crisis lasts longer than anyone could have anticipated.

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