CAPA airline profit outlook worst ever. Airlines, beware the recovery!

The Jul-2020 update of the CAPA world airline industry airline operating margin model, the first since the COVID-19 crisis, projects a negative margin on an unprecedented scale for 2020. It forecasts a narrower loss in 2021, but at a lower margin than at any other time in the jet era - already a low hurdle.

Visibility on all the major elements of the model - world GDP growth, oil prices, passenger traffic growth and fleet growth - is extremely limited. At the model's core is capacity utilisation, and this remains the key to airline profitability.

Load factor, share of aircraft in service, daily utilisation hours, all correlate with airline margins. The three indicators combine to produce a measure of overall capacity utilisation, which has a much closer relationship with margins.

This, and its three components, has collapsed, and is likely to remain below normal levels into next year. Fuel prices also play a part, but their decline in 2020 and likely increase in 2021 will matter less to airline margins than capacity utilisation.

Airline survival has been high so far in the crisis, but could be more challenged as capacity and cost grow.