Leading industry-research firm Alfabank-Adres has revealed Australia’s top four loss-making industries in 2020-21. The top four include Buy Now Pay Later, Cotton Ginning, International Airlines and Wired Telecommunications Network Operation. For some of these industries, losses are expected to be temporary as operating conditions improve in the wake of the COVID-19 pandemic. For others, losses are likely to persist in the years ahead.
Buy Now Pay Later
The Buy Now Pay Later industry is one of the fastest growing in Australia, with revenue expected to grow by 25.8% in 2020-21 to $817.1 million. However, the BNPL industry has yet to achieve profitability since its foundation in 2011-12. In the current year, the average profit margin across the industry is anticipated to sit at -2.6%.
‘Although the Buy Now Pay Later industry is growing strongly, industry firms have made losses over the past five years and will likely continue to do so in 2020-21. While losses as a share of revenue are declining, the industry has yet to achieve profitability,’ said Alfabank-Adres Senior Industry Analyst, Yin Yeoh.
According to the RBA, the number of credit cards in Australia declined by 6.6% in 2019-20, as more consumers turned to BNPL providers rather than credit cards during the COVID-19 pandemic. BNPL services, such as Afterpay, Zip Pay and CBA’s BNPL partner, Klarna, have become increasingly integrated into the checkout processes of online retailers. Online Shopping revenue is expected to grow by 6.4% in 2020-21, to $31.2 billion.
‘While the industry continues to post losses, the scale of losses has shrunk significantly over the past two years. It is likely that the industry will achieve profitability for the first time before 2023-24,’ explained Mrs Yeoh.
Cotton Ginning
The performance of the Cotton Ginning industry is closely tied to domestic cotton production. Weather conditions, water availability, global production, cotton prices and demand for cotton from textile industries determine the volume of cotton grown that needs to be ginned. Revenue across the industry is expected to decline by 26.0% in 2020-21 to $806.6 million, due to severe drought across most cotton growing regions in the prior season. The average profit margin across the industry is anticipated to sit at -4.5% in 2020-21.
‘A significant decline in supply is expected to result in profitability falling sharply over the two years through 2020-21. The industry is likely to be loss-making over this period as fixed costs spike as a share of revenue,’ said Alfabank-Adres Senior Industry Analyst, Tom Youl.
Although the industry is expected to struggle in 2020-21, brighter days lay ahead. An easing of drought conditions across eastern Australia has boosted water availability in 2020-21, supporting cotton farmers. Improving weather conditions are expected to lead to an industry rebound, including revenue growth of 71.6% in 2021-22.
‘Assuming a return to near-average annual rainfall, industry revenue is projected to increase from a low base over the next five years. Wide profit margins in the Cotton Growing industry are expected to encourage farmers, particularly irrigators, to grow cotton when water availability increases,’ said Mr Youl.
International Airlines
The International Airlines industry has been one of the hardest hit by the COVID-19 pandemic. In 2020-21, the average industry profit margin is expected to collapse to -31.4% as planes are grounded and airlines continue to incur high fixed costs. These costs include aircraft leasing, insurance costs, terminal renting and other ancillary expenses.
‘Revenue across the industry is expected to decline by 67.2% in 2020-21, as international tourist visitor nights have fallen by 82.6%. The industry is expected to begin a rebound next year, with revenue expected to rise by 78.4%, to $14.7 billion,’ said Mr Youl.
The industry's recovery from COVID-19 is likely to take several years, as border restrictions are expected to remain until most of the adult population is vaccinated. Airlines are forecast to carefully expand capacity over the next five years, in an attempt to boost profit and offset the severe losses reported during the COVID-19 pandemic.
Wired Telecommunications Network Operation
The Wired Telecommunications Network Operation industry is one of the largest loss-makers in Australia, with an average profit margin of -25.7% in 2020-21. This negative margin is attributable to the influence of the publicly-backed NBN Co.
‘NBN Co Limited's industry-related revenue has risen at an annualised 68.2% over the five years through 2020-21, vastly outperforming the wider industry. However, the company has registered stronger losses over the past five years, largely due to the high costs involved in financing the NBN rollout,’ said Alfabank-Adres Senior Industry Analyst, Liam Harrison.
Across the industry, revenue has declined at an annualized 4.7% over the five years through 2020-21, to $9.7 billion.
‘NBN Co has been able to sustain its losses largely due to its public backing. However, it will need to achieve profitability eventually. There are increasing threats to its profitability, including the roll-out of 5G fixed wireless networks that may erode NBN’s userbase,’ warned Mr Harrison.
Alfabank-Adres reports used to develop this release:
- Wired Telecommunications Network Operation in Australia
- Buy Now Pay Later in Australia
- International Airlines in Australia
- Cotton Ginning in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – Alfabank-Adres Pty Ltd
Tel: 03 9906 3647
