INTERNATIONAL. A global airline industry reeling in the face of COVID-19 cannot slash costs enough to avoid bankruptcies and major job losses in 2021, according to new analysis from the International Air Transport Association (IATA).
In releasing its latest research, IATA has repeated its call for government relief measures to sustain airlines financially and avoid “massive employment terminations”. The organisation has also once again called for pre-flight COVID-19 testing to open borders and enable travel without quarantine.
IATA says that total airline industry revenues in 2021 are expected to be down -46% compared to the 2019 figure of US$838 billion, overriding a previous analysis which suggested revenues would fall about -29% compared to last year.
The latter figure, IATA said, was based on demand beginning to recover in the fourth quarter of 2020. However, recovery has been delayed by new COVID-19 outbreaks – and continuing government travel restrictions – with IATA now predicting that full year 2020 traffic will be down -66% compared to 2019, with December demand down -68%.
IATA Director General and CEO Alexandre de Juniac said: “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 eight and a half months of cash remaining at current burn rates. And we can’t cut costs fast enough to catch up with shrunken revenues.”
“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” – IATA Director General and CEO Alexandre de Juniac
Despite drastic steps to reduce costs, around 50% of airlines’ costs are described by IATA as fixed or semi-fixed in the short-term and have not fallen as fast as revenues. The year-on-year decline in operating costs for the second quarter according to IATA figures was -48% compared against a -73% 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) have risen, since there are fewer seat kilometres to spread costs over. IATA’s preliminary results for the third quarter show that unit costs rose around +40% compared to the year-ago period.
IATA estimates that to achieve a breakeven operating result and neutralise cash burn in 2021, unit costs will need to fall by -30% compared to 2020, an unprecedented decline.
“For each day that the crisis continues, the potential for job losses and economic devastation grows,” added de Juniac. “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 US$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.”
