6 May 2021Insurance

Outlook remains bleak for aviation industry as re/insurers assess their options

The aviation industry will lose around $5-6 billion per month in 2021, according to an estimate by the International Air Transport Association (IATA), as re/insurers consider their options in business that was already challenging, even before COVID.

“From a market perspective many insurers were already grappling with the ongoing lack of profitability of the airline class, as well as significant manufacturers grounding losses over the past several years including the Boeing MAX loss,” said Joe Trotti, head of aviation and aerospace at McGill and Partners. “Given the magnitude of the loss it also had an impact on the aviation reinsurance market which began to implement price increases to the direct insurers, creating further pressure.”

IATA warned aviation passenger numbers will not fully recover until 2024, after a harrowing year in 2020 that saw the industry report losses of $118 billion.

Data show demand for air travel was down 65.9 percent year on year in 2020, while nearly 17,000 airliners sat idle due to the COVID-19 pandemic. Nearly 20 percent of US airline fleets, or nearly 1,000 aircraft, were in long-term storage as of October 25, 2020, according to an estimate by Airlines for America (A4A). In all, 43 commercial airlines failed or suspended operations in 2020, including larger carriers.

Trotti warned many airlines will remain in “survival mode” in 2021, despite recent indications that domestic passenger demand is increasing in some countries, including the US.

Restrictions and closed borders in many countries are making timeframes for a full recovery unclear, he said. “Recently, we’ve seen many of the world’s biggest commercial airlines post huge losses and with travel restrictions still in place internationally it’s expected that these financial losses will continue in 2021.”

Trotti noted that start-up airlines are taking advantage of the struggles faced by legacy carriers, picking up aircraft at attractive rates and qualified pilots and staff who are not currently working.

Trotti said underwriters are paying close attention to the work airlines are doing to reopen their services. “While the market remains challenging, there are underwriters who understand the environment and are working with brokers to provide a tailored approach to address these challenges,” he said.

“Broker selection is critical to the success of a renewal,” Trotti added. “Clients need to have confidence that their brokers’ experience, relationships, use of analytics and innovative approach are suitably dynamic to overcome these challenges to deliver the best solution that meets the individual needs and differentiates them from the crowd.”

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