The representative body for the world airline industry, the International Air Transport Association (Iata), has become more pessimistic about the prospects for the sector during this year. Whereas, previously, it expected the airline industry to turn cash positive in the last quarter, now, in its latest forecast, it predicted that the sector would not turn cash positive until next year.
Moreover, while Iata had previously forecast that the world’s airlines would burn $48-billion in cash this year, it now expected the cash burn for 2021 to range from a minimum of $75-billion to perhaps as much as $95-billion. Forward bookings for flights in the northern summer holiday period (July and August) were 78% below the levels of February 2019 (February 2020 figures were distorted by the onset of the Covid-19 pandemic). For aviation, the first half of this year was shaping up to be worse than predicted, because of governments imposing stricter conditions for travel owing to the emergence of new strains of the disease.
“With governments having tightened border restrictions, 2021 is shaping up to be a much tougher year than previously expected,” stressed Iata director-general and CEO Alexandre de Juniac. “Our best-case scenario sees airlines burning through $75-billion in cash this year. And it could be as bad as $95-billion.”
Iata’s best-case scenario was that travel restrictions would be gradually removed following the vaccination of the Covid-19-vulnerable segments of the populations of developed countries. However, the time this would take would only allow weak demand during the airline industry’s peak demand season, the northern summer. Consequently, during this year’s northern summer air passenger demand would be only 38% of that during the same period in 2019. Although airlines would continue to burn cash in the fourth quarter, the predicted figure for that quarter – $7-billion – would be far below the expected first quarter cash burn of $33-billion.
The worst case scenario was that governments would maintain tight travel curbs throughout the northern summer season. That would mean that peak travel demand would be only 33% of that in 2019. While airline cash burn would still decline from $33-billion in the first quarter, it would be $16-billion in the fourth quarter, far above the best-case estimate. Total airline cash burn for the year would be $95-billion.
“More emergency relief from governments will be needed,” he affirmed. “A functioning airline industry can eventually energise the economic recovery from Covid-19. But that won’t happen if there are massive failures before the crisis ends. If governments are unable to open their borders, we will need them to open their wallets with financial relief to keep airlines viable.”