IATA says airlines face catastrophic 2021 due to COVID-19 second wave

October 28, 2020
Credit: Megan Dingwall @PegsontheLine

IATA has warned that airlines face a catastrophic 2021 due to the second wave of COVID-19 cases sweeping Europe and the USA with airlines – on average – having just over eight months of cash left.

New analysis from the International Air Transport Association (IATA) shows that total industry revenues in 2021 are expected to be down 46 per cent compared to the 2019 figure of $838 billion. The previous analysis was for 2021 revenues to be down around 29 per cent compared to 2019.

This was based on expectations for a demand recovery commencing in the fourth quarter of 2020. Recovery has been delayed, however, owing to new COVID-19 outbreaks, and government-mandated travel restrictions including border closings and quarantine measures.

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IATA says that the airline industry cannot slash costs sufficiently to neutralize severe cash burn to avoid bankruptcies and preserve jobs in 2021.

It has reiterated its call for government relief measures to sustain airlines financially and avoid massive employment terminations and also called for pre-flight COVID-19 testing to open borders and enable travel without quarantine.

Alexandre de Juniac, IATA’s director general and chief executive said that “the fourth quarter of 2020 will be extremely difficult and there is little indication the first half of 2021 will be significantly better, so long as borders remain closed and/or arrival quarantines remain in place.

“Without additional government financial relief, the median airline has just 8.5 months of cash remaining at current burn rates and we can’t cut costs fast enough to catch up with shrunken revenues.”

”Although airlines have taken drastic steps to reduce costs, around 50 per cent of airlines’ costs are fixed or semi-fixed, at least in the short-term. The result is that costs have not fallen as fast as revenues. For example, the year-on-year decline in operating costs for the second quarter was 48 per cent compared with a 73 per cent decline in operating revenues, based on a sample of 76 airlines.”

“Furthermore, as airlines have reduced capacity (available seat kilometres, or ASKs) in response to the collapse in travel demand, unit costs (cost per ASK, or CASK) have risen, since there are fewer seat kilometres to ‘spread’ costs over. Preliminary results for the third quarter show that unit costs rose around 40 per cent compared to the year-ago period,” Mr de Juniac warned.

One of the key costs is lease payments for aircraft with around 60 per cent of the world aircraft fleet leased. While airlines have received some reductions from lessors, aircraft rental costs have dropped less than 10 per cent over the past year says IATA.

It says it is also critical that airports and air navigation service providers avoid cost increases to fill gaps in budgets that are dependent on pre-crisis traffic levels.

Fuel is the only bright spot for airlines with prices down 42 per cent on 2019. Unfortunately, says IATA fuel prices are expected to rise next year as increased economic activity raises energy demand.

“There is little good news on the cost front in 2021. Even if we maximize our cost-cutting, we still won’t have a financially sustainable industry in 2021,” de Juniac said.

“The handwriting is on the wall. For each day that the crisis continues, the potential for job losses and economic devastation grows. Unless governments act fast, some 1.3 million airline jobs are at risk.

“And that would have a domino effect putting 3.5 million additional jobs in the aviation sector in jeopardy along with a total of 46 million people in the broader economy whose jobs are supported by aviation.”

“Governments must take firm action to avert this impending economic and labour catastrophe. They must step forward with additional financial relief measures. And they must use systematic COVID-19 testing to safely re-open borders without quarantine,” de Juniac said.