The world’s airlines are haemorrhaging cash at a rate of around $300,000 per minute or $13 billion per month, which could force large swathes of the industry into bankruptcy within months, IATA has warned.
With traffic levels set to remain stunted through 2021, IATA believes carriers will continue to burn cash next year, at a rate of $5-6 billion a month, collectively – even assuming that a Covid-19 vaccine is discovered.
Lowering its estimates for revenue passenger-kilometres, the airline association now expects December traffic levels to be 68% lower than last year, against a 55% reduction that it forecast in July. It does not see sector profitability returning until 2022.
“The crisis is growing longer and deeper than anyone could have imagined,” states IATA director general Alexandre de Juniac. “And the initial support programmes are running out. Today we must ring the alarm bell again. If these support programmes are not replaced or extended, the consequences for an already hobbled industry will be dire.”
From examining the available cash and liquid assets of carriers in their six-month reports to the end of June, IATA found that on average airlines had enough funding to last just eight-and-a-half months, taking them to halfway through February 2021.
The many carriers that are unable to raise cash from the markets face running out of liquidity far sooner than that.
While the number of airlines that have collapsed has so far been limited by around $160 billion in government support to the sector, that assistance has started to be withdrawn. “Obviously that makes sense when you look at the broader economy,” says IATA chief economist Brian Pearce, “But air travel is certainly not strong enough [to survive without assistance].”
At the heart of the problem is that while carriers have seen their revenues fall by around 80%, costs have declined only 50%, as aircraft and staff costs are difficult to reduce. “This is why airlines burning through cash and still making significant losses,” notes Pearce.
IATA is now calling on governments to provide urgent financial aid.
“Government support for the entire sector is needed,” says de Juniac. “The impact has spread across the entire travel value chain including our airport and air navigation infrastructure partners who are dependent on pre-crisis levels of traffic to sustain their operations.”
A failure to invest in the sector not only threatens the aviation industry, but the 10% of global economic activity that is linked to it, he argues. Combined, aviation supports 46 million jobs across the world and $1.8 trillion in economic activity, IATA estimates.
When pressed on how urgently the assistance was required, de Juniac was emphatic: “Pretty critical. Pretty critical, otherwise the industry will run out of cash and you will see more and more bankruptcies. It is critical and urgent.”