GENEVA – Global financial markets remain pessimistic about the future of the airline industry. While stock indexes have recovered to above pre-pandemic levels, airline stocks remain depressed and hover around 40 percent below pre-covid-19.
Brian Peace, IATA’s chief economist shared the outlook in a media call on October 6.
While governments around the world have supported the industry with approximately US$161 billion, supports are now being withdrawn at a time when aviation is still not on the recovery path. Pearce noted, however, that the extension of wage subsidies in some countries – including Canada – will help to mitigate the pain.
IATA expects that revenue passenger kilometres (RPKs) will be only a third of normal levels by the end of the year and the industry’s yields will recover to 68 percent below pre-pandemic levels by December.
Cost cutting difficult
The structure of the recovery is preventing airlines from cutting costs commensurately with revenue declines. Because most air travel at the moment is short haul, requiring more aircraft to service routes, carriers are unable to cut their fleets as much as needed to match revenue shortfall.
Pearce noted that while air travel is down 75 percent, fleets have only been cut by 23 percent. Because of this, while revenue was down 80 percent in Q2 – in spite of the spike in cargo revenue – costs have only been cut by 50 percent. Labour and maintenance costs were identified as those airlines were able to cut the least.
In the second half of 2020 IATA forecasts a $77 billion cash burn. In the face of weak revenue, the challenges of cost reduction and declining government subsidies, airlines are “burning through the cash and liquid assets they have to survive the tough situation,” Pearce said.
The average (median) airline has only 8.5 months worth of assets given the second half burn rate, Pearce said. Expecting very tough conditions to continue through early 2021, is longer than the 8.5 months estimated. Airlines are “facing some tough winter months,” he said.
Call for support
The solution to get the industry back in the air is to implement systematic pre-departure Covid-19 testing, said Alexandre de Juniac, IATA director general and CEO. That would give governments the confidence to open borders.
“In the meantime the crisis growing longer and deeper than anyone could have imagined,” de Juniac asserted. “The enormity of what’s happening to aviation has consequences far beyond the industry itself.”
He called on governments to be actively involved in supporting the industry with continued wage subsidies and other support. If they do not step up there will be further bankruptcies and job losses.
Passing costs down the value chain is not an option, de Juniac said. All that does is push the price of travel up at a time when price-sensitive consumers say they won’t travel until personal finances recover.