The International Air Transport Association (IATA) presented a new analysis showing the airline industry cannot slash costs sufficiently to neutralise severe cash burn to avoid bankruptcies and preserve jobs in 2021.
IATA has called for government relief measures to sustain airlines financially and avoid massive employment terminations. IATA also called for pre-flight Covid-19 testing to open borders and enable travel without quarantine.
Total industry revenues in 2021 are expected to be down 46 percent compared to the 2019 figure of $838-billion.
According to a press statement by IATA, recovery has been delayed due to new Covid-19 outbreaks and government-mandated travel restrictions including border closings and quarantine measures. IATA expects full-year 2020 traffic to be down 66 percent compared to 2019, with December demand down 68 percent.
“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,” said Alexandre de Juniac, IATA’s director general and chief executive.
He said although airlines had taken drastic steps to reduce costs, around 50 percent of airlines’ costs are fixed or semi-fixed, at least in the short-term. The result is costs had not fallen as fast as revenues.
IATA estimates that to achieve a breakeven operating result and neutralise cash burn next year, unit costs will need to fall by 30 percent compared to average CASK for 2020.
“There is little good news on the cost front in 2021. Even if we maximise our cost-cutting, we still won’t have a financially sustainable industry in 2021.
“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.
“Moreover, the loss of aviation connectivity will have a dramatic impact on global GDP, threatening $1.8 trillion in economic activity. 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,” said de Juniac.