The Outlook for Airlines in 2021

Demand Trajectory and Recovery

• Air travel demand fell mid-90% by April 2020 (down 30% in mid-March), a steeper decline than the 30% drop seen post-9/11; June 2020 remained down 80%.
• Current demand remains muted, with passengers down just under 60% year-over-year as of the interview date (January 2021).
• Goldmans Sachs Research forecasts 2021 demand will remain roughly one-third lower than 2019 levels, driven by a weak first half and a stronger second half.
• The forecast assumes a fourth-quarter 2021 exit rate where demand is down only 20% compared to 2019.
• Full demand recovery to 2019 levels is projected to occur no earlier than 2023.

Financial Performance and Capital Structure

• Airline revenue in Q3 2020 dropped just over 60% year-over-year, mirroring the decline in passenger demand.
• Industry-adjusted losses totaled over $24 billion for the first three quarters of 2020, contrasting with net income of over $11 billion in the same period in 2019.
• Airlines raised $54 billion via public debt capital markets and under $7 billion through new equity issuance since March 2020.
• The sector faces prolonged profitability challenges due to a significantly higher debt load and an anticipated period of lower ticket prices.
• Lower ticket prices are expected as a result of a slower corporate travel recovery (high-yield segment) and intensified competition during the demand rebuild.

Government Stimulus and Aid

• Under the 2020 CARES Act, the industry received $25 billion in payroll support, consisting of 70% in non-repayable grants and 30% in low-interest, long-term unsecured loans.
• A second 2020 CARES provision allocated an additional $25 billion for a five-year secured loan program with below-market rates, though not all carriers participated.
• The 2021 relief package allocates $15 billion in payroll support, contingent on airlines recalling employees furloughed after September 2020.

Operational and Safety Adjustments

• Airlines have intensified cleaning protocols, including antimicrobial misting and public education on pre-existing HEPA filtration (which refreshes cabin air every 2–3 minutes).
• Most U.S. carriers have discontinued blocking middle seats following research by the Department of Defense, with Delta being the primary exception.
• Change fees have been waived for most fare classes to build consumer confidence during the pandemic.
• Despite safety efforts, U.S. passenger demand improved only modestly from September to January 2021 despite rising case numbers.

Mergers, Consolidation, and Fleet Strategy

• No new consolidation or M&A activity has occurred since the Alaska/Virgin America merger in 2016, despite financial distress.
• Future consolidation is likely to involve smaller carriers rather than the top four players, who already control over 80% of the domestic market and face regulatory hurdles.
• Boeing 737 MAX grounding was lifted in November 2020; global order backlogs have declined only 13% from pre-grounding highs.
• No U.S. airlines have canceled MAX orders; Alaska Airlines increased its order book.
• Airlines are prioritizing the retirement of older aircraft (8% of 2019 fleet retired) to right-size capacity rather than delaying new deliveries, with the total 2021 fleet projected to be only 2% smaller than 2019.

Innovation and Product Outlook

• Short-term innovation is expected to slow as carriers prioritize debt repayment and freeze spending.
• Long-term business models and product offerings are anticipated to revert to pre-pandemic norms by 2023.
• The waiver of change fees represents a structural shift in consumer-facing policies that may persist beyond the pandemic.