Covid-19 Impact: Airlines Not Expected to Turn Cash Positive Until 2022

Photo source: IATA

The International Air Transport Association (IATA) is calling on governments to support the airline industry during the coming winter season with additional relief measures, as the impact of the coronavirus (Covid-19) crisis has proven to be “deeper and longer”.

The association on Tuesday warned that the airline industry will burn through $77 billion in cash during the second half of 2020 (almost $13 billion/month or $300,000 per minute), despite the restart of operations. The slow recovery in air travel will see the airline industry continuing to burn through cash at an average rate of $5 to $6 billion per month in 2021.

According to IATA, the industry is not expected to turn cash positive until 2022.

“We are burning through cash because we cannot cut costs fast enough to make up for the impact of not being able to do business. Borders for the most part remain closed,” said IATA Director General and CEO Alexandre de Juniac.

To date, governments around the world have provided the airline industry with $160 billion in support, including direct aid, wage subsidies, corporate tax relief, and specific industry tax relief including fuel taxes.

“We are grateful for this support… But the crisis is deeper and longer than any of us could have imagined. And the initial support programs are running out. Today we must ring the alarm bell again. If these support programs are not replaced or extended, the consequences for an already hobbled industry will be dire,” de Juniac stressed.

IATA estimates that despite cutting costs just over 50 percent during the second quarter, the industry went through $51 billion in cash as revenues fell almost 80 percent compared to the year-ago period. The cash drain continued during the summer months, with airlines expected to go through an additional $77 billion of their cash during the second half of this year and a further $60-70 billion in 2021.

According to the association, airlines have undertaken extensive self-help measures to cut costs. This includes parking thousands of aircraft, cutting routes and any non-critical expense and furloughing and laying off hundreds of thousands of experienced and dedicated employees.

“With no timetable for governments to reopen borders without travel-killing quarantines, we cannot rely on a year-end holiday season bounce to provide a bit of extra cash to tide us over until the spring,” said de Juniac.

Aiming for quarantine measures to be replaced with Covid-19 testing for passengers from high-risk areas, IATA, along with ACI EUROPE and Airlines for Europe (A4E), recently submitted a relevant proposed framework to the European Commission and member states.

Raising the cost of travel not the solution

Photo source: IATA

IATA’s CEO also added that raising the cost of travel to make ends meet is not an option, as there will be little appetite among consumers for cost increases.

In a recent IATA survey, some two thirds of travelers have already indicated that they will postpone travel until the overall economy or their personal financial situation stabilizes.

“Increasing the cost of travel at this sensitive time will delay a return to travel and keep jobs at risk,” he said.