Airlines running out of cash, need more govt aid to avoid layoffs, bankruptcies: Iata

AIRLINES around the world have been unable to slash their costs sufficiently to neutralise severe cash burn to avoid bankruptcies and save jobs in 2021, and their revenues next year will likely come in at just half of 2019's levels.

The International Air Transport Association (Iata) thus reiterated its call for government relief measures to sustain carriers financially and prevent massive retrenchments.

In a statement on Tuesday night, Iata noted that the global airline industry's total revenues in 2021 are expected to be 46 per cent lower than last year's US$838 billion.

That's worse than the association's previous forecast that 2021 revenues will fall by 29 per cent from 2019 levels.

The recovery in air travel demand has been delayed due to new Covid-19 outbreaks around the world and government-mandated travel restrictions such as border closures and quarantine measures.

Iata, which represents some 290 airlines, believes that the industry's full-year traffic for 2020 will slide 66 per cent compared to 2019, with December demand to shrink by 68 per cent from a year ago.

It added that the fourth quarter this year will be "extremely difficult", and there is little indication that the first half of next year will be significantly better, if borders stay closed and arrival quarantines remain in place.

The median airline has just 8.5 months of cash left, at current burn rates and without additional government financial relief, said Iata director-general and chief executive Alexandre de Juniac.

"We can't cut costs fast enough to catch up with shrunken revenues," he added.

Although carriers have taken drastic steps to reduce costs, about half of their costs are fixed or semi-fixed, at least in the short term.

As a result, costs are not falling as quickly as revenues. For instance, operating costs for the second quarter this year declined by 48 per cent year on year, slower than the 73 per cent drop in operating revenues, based on a sample of 76 airlines.

Moreover, unit costs - cost per available seat kilometre (CASK) - have risen because there are now fewer seat kilometres to "spread" costs over, as airlines reduce capacity in response to the collapse in travel demand, Iata said.

Preliminary results for the third quarter showed that unit costs grew by around 40 per cent year on year.

To achieve a breakeven operating result and neutralise cash burn, unit costs will need to fall by 30 per cent in 2021, compared to the average CASK for 2020. "Such a decline is without precedent," Iata said.

It also urged airports and air traffic controllers not to increase their prices to cover gaps in their budgets that were dependent on pre-crisis traffic levels.

While the association does not advocate specific workforce reductions, it pointed out that maintaining last year's level of labour productivity - available seat kilometres per employee - will require jobs to be cut by 40 per cent.

"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," Mr de Juniac said.

"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 in the broader economy whose jobs are supported by aviation."

Iata on Tuesday also urged the authorities to implement pre-flight Covid-19 testing to open borders and enable travel without quarantine.