Trade body IATA is warning states will have to dig deeper over the coming months to support struggling airlines as travel restrictions continue to tighten in response to new strains of the Covid virus.
While airlines entered the year with optimism that the roll-out of vaccines meant a recovery in air travel demand may be in sight, this has been tempered by a series of moves by states to curtail travel as a number of more contagious Covid strains emerged. For example, the UK on 27 January imposed mandatory isolation in hotels for vistiors from countries where travel bans are in place.
”I think the short-term outlook has certainly darkened,” acknowledged IATA chief economist Brian Pearce during a briefing.
”The critical time will be the summer season, because that is when airlines make most of their money. This is the seasonally low time of year for travel. The vaccine should make all the difference, so the second half of the year should be and feel very different to what it’s feeling like now. So we are hoping this is the dark before the dawn.”
While the heightened restrictions are further impacting travel demand, Pearce says the association already had a “very conservative” forecast under which it expects traffic this year to be around half 2019 levels.
However, he adds: ”What we have also seen is airlines getting very low yields on passengers, partly because they have been pricing to try to stimulate demand….so revenues have been worse than the passenger [traffic] situation. So we will be looking at that closely when we come to update our outlook on cash burn, which is clearly going to be very significant in the first part of this year.”
IATA estimates governments have already provided almost $200 billion of cash to help keep airlines “on life support” — a key reason for the relatively small number of carrier failures so far during the crisis.
”We are facing a really challenging first half of the year before the vaccines really start to make a difference to travel demand, the situation is getting worse,” Pearce says. ”Many airlines have been able to raise a lot of cash, not just from government aid, but from borrowing in the capital markets. But if the summer season is endangered, there will be a clear need for more cash to keep airlines alive.”
IATA chief executive Alexandre de Juniac adds that against this backdrop, further state support for the sector is required. ”For the next six to eight months we desperately need government support by any means, cost reduction, tax relief, cash injections, subsidies. Everything.”