A latest statement from the International Air Transport Association (IATA) warns that job cuts into 2021 will be inevitable, with airlines reaching the edge of Covid cost-slashing measures as planes remain grounded.
The aviation association is reiterating its call for governments to sustain airlines financially and to avoid massive employment terminations, because “without additional financial relief, the median airline has just 8.5 months of cash remaining at current burn rates,” said Alexandre de Juniac, IATA’s director general and CEO.
Pre-flight Covid-19 testing to open borders and allow travel without quarantine also remains one of the top urgent requests from IATA.
“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.”
Looking ahead, earlier research had predicted industry revenues to fall 29% in 2021, as compared to 2019. However, as uncertain travel restrictions continue to linger—crushing hopes for a Q4 2020 recovery—this figure rose to 46%, a marked drop from US$838 billion just last year.
IATA expects full year 2020 traffic to be down 66% compared to 2019, with December demand down by 68%.
Although airlines have taken severe cost-saving steps, nearly half of operating costs are fixed, which mean bills continue to rack up even as revenues drop. IATA’s sample of 76 airlines revealed a 73% decline in revenue, yet operating costs stayed at a 48% decline.
Another factor is unit costs, defined as the cost per available seat kilometres (ASKs). With reduced capacities due to lack of travel demand, there are fewer seat kilometres to spread out the cost of flying the aircraft.
Numbers from IATA indicate that to achieve a breakeven operating result and neutralise cash burn, unit costs will have to fall by 30%—a decline that’s unprecedented in the industry.
This is where suppliers such as airports, lessors and air navigation service providers can step in, by reducing leases and avoiding cost increases to fill gaps in budgets based on pre-pandemic traffic levels.
Caught between a rock and a hard place, while IATA seeks to avoid massive employment terminations, practical analysis show that maintaining 2019’s level of labour productivity would require employment to be shaved by 40%. Should this reduction be achieved, total costs would still be higher than revenues in 2021, which means airlines will continue to bleed through their cash reserves.
“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.
One bright spot does remain in this bleak situation. Fuel costs have nosedived 42% from 2019, but, prices are also expected to rise in 2021 as economic activity raises energy demand.
“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.”