LONDON – The International Air Transport Association (IATA) has warned that the commercial aviation sector will burn around US$300,000 per minute in costs due to the ongoing COVID-19 pandemic. IATA adds that the airline industry faces a “looming cash crisis” due to such slow recovery in the market.
This figure equates to an estimated US$77bn cash burn for the second half of 2020, with the institution calling on state governments to continue funding struggling carriers. At the moment, governments globally have provided around US$160bn in support, which includes the following things:
- Direct aid.
- Wage subsidies.
- Corporate tax relief including fuel taxes.
de Juniac Grateful for Support
Commenting on the new figures was IATA’s Director General and CEO Alexandre de Juniac, who expressed thanks to governments who have provided funding.
“We are grateful for this support, which is aimed at ensuring that the air transport industry remains viable and ready to reconnect the economies and support millions of jobs in travel and tourism.”
“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.”
Why Will Airlines Struggle More This Winter?
Traditionally, the Summer season is the busiest period for the airline industry out of the entire year, meaning that cash reserves can be built up. This is so then airlines can afford to pay for operations going into the Winter, which are less busy periods because of Thanksgiving, Christmas and other events where people will stay at home.
Therefore, airlines will struggle more for the Winter 2020 season because none of those cash reserves in question have been acquired due to the Summer of disruption caused by the virus. de Juniac added on this.
“Unfortunately, this year’s disastrous spring and summer provided no cushion. In fact, airlines burned cash throughout the period. And 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 the CEO.
Disruptive Few Years Ahead
According to IATA, costs have been cut by over 50% during 2Q20 by airlines around the world, but this has not provided a cushion at all. It is understood that airlines also spent around US$51bn in cash due to revenues decreasing by around 80% compared to the same period last year.
Forecast data also suggest that the industry will spend an additional US$60-70bn over the course of 2021, before becoming cash positive the year after.
It remains clear that these data by IATA are true, but remain a bit more optimistic compared to other experts in the industry who predict a 2024 recovery.
Spend, Spend, Spend!
In order for airlines to stay afloat, vast amounts of money will be spent, but the timeline is still not as clear-cut as the industry would like it. As the Chief Doctor of IATA said earlier last month, the industry cannot afford to wait for a vaccine, and there is only so much that can be done to make air travel safe.
Many elements of safety can be installed, but unless a vaccine is developed and widely distributed, then consumer confidence in going overseas will continue to be very low even post-pandemic.
It is an agreeable point that more pressure needs to be government, especially as in the Qatar Airways CEO HE Mr. Akbar Al Baker’s words at the World Affairs Council of America, they have been “too aggressive” when it comes to dealing with the virus.
For now, as has been said in many of these articles, all we can do is sit back and wait for action. But it is needed now.
Featured Image: A passenger looking out to the airport. Photo Credit: Penn Medicine