Airlines cannot cut costs sharply enough in the current pandemic in
order to avoid bankruptcies and job losses, and have just a few months of cash
left, IATA’s CEO has said today.
The organisation said it expected 2020 revenues from the airline sector to
be 46 per cent down on 2019 figures of US$838 billion.
“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 CEO.
IATA said that around 50 per cent of airlines’ costs are fixed or
semi-fixed, at least in the short-term, and as a result costs have not fallen
as fast as revenues.
Looking forward to 2021, it estimates that to achieve a breakeven
operating result and neutralise cash burn, unit costs will need to fall by 30
per cent compared to the average for 2020. It said such a decline is “without
precedent”.
Factors contributing to this problem include:
- Airlines
have parked thousands of mostly long-haul aircraft and shifted their
operations to short haul flying where possible. However, because the
average distance flown has fallen sharply, more aircraft are required to
operate the network.
- Around
60% of the world aircraft fleet is leased. While airlines have received
some reductions from lessors, aircraft rental costs have dropped less than
10 per cent over the past year.
“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 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,” said de
Juniac.