The International Air Transport Association (IATA) presented new analysis on Tuesday (27 October) during a media conference call that it said shows the airline industry cannot cut costs enough to avoid burning through cash and save aviation employees as well as hold off more bankruptcies next year. IATA reiterated its call for government relief measures to help airlines financially and avoid mass firings. The association also reiterated its call for pre-flight COVID-19 testing to open borders and enable travel without quarantines.
Total industry revenues in 2021 are expected to be down 46 percent compared to the 2019 figure of US$838 billion, IATA said. The previous analysis was for 2021 revenues to be down around 29 percent 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. 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,” said Alexandre de Juniac, IATA’s director general and CEO. “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 percent 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 percent compared with a 73 percent decline in operating revenues, based on a sample of 76 airlines, IATA said.
While IATA officials said they are not advocating specific workforce reductions, maintaining last year’s level of labour productivity (ASKs/employee), would require employment to be cut 40 percent. Further jobs losses or pay cuts would be required to bring unit labour costs down to the lowest point of recent years, a reduction of 52 percent from 2020 Q3 levels. Even if that unprecedented reduction in labour costs were to be achieved, total costs will still be higher than revenues in 2021, and airlines will continue to burn through cash.
“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,” said de Juniac. “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 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,” said de Juniac.