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2021: It’s Going To Be Tougher Than Expected

IATA Reports Cash Burn Continues, Urgent Preparations for Restart Needed

Cash negative throughout 2021.

That’s the bottom line in a newly released analysis by IATA of the airline industry’s expectations for the coming 12 months.

Back in November 2020, IATA’s analysis had indicated that airlines would turn cash positive in the fourth quarter of 2021; however, now at the industry level, airlines are now not expected to be cash positive until 2022.

Estimates for cash burn in 2021 have ballooned to the $75 billion to $95 billion range from a previously anticipated $48 billion.

Factors playing into IATA’s estimate, include:

Weak Start for 2021: It is already clear that the first half of 2021 will be worse than earlier anticipated.  This is because governments have tightened travel restrictions in response to new COVID-19 variants. Forward bookings for summer (July-August) are currently 78% below levels in February 2019 (comparisons to 2020 are distorted owing to COVID-19 impacts).

Optimistic Scenario: From this lower starting point for the year, an optimistic scenario would see travel restrictions gradually lifted once the vulnerable populations in developed economies have been vaccinated, but only in time to facilitate tepid demand over the peak summer travel season in the northern hemisphere. In this case 2021 demand would be 38% of 2019 levels. Airlines would burn through $75 billion of cash over the year. But cash burn of $7 billion in the fourth quarter would be significantly improved from an anticipated $33 billion cash burn in the first quarter.

Pessimistic Scenario: This scenario would see airlines burn through $95 billion over the year. There would be an improving trend from a $33 billion cash burn in the first quarter reducing to $16 billion in the fourth quarter. The driver of this scenario would be governments retaining significant travel restrictions through the peak northern summer travel season. In this case, 2021 demand would only be 33% of 2019 levels.

Alexandre de Juniac, IATA’s Director General and CEO, said that: “With governments having tightened border restrictions, 2021 is shaping up to be a much tougher year than previously expected. Our best-case scenario sees airlines burning through $75 billion in cash this year. And it could be as bad as $95 billion.”

He continued: “More emergency relief from governments will be needed. A functioning airline industry can eventually energize 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,”

IATA also makes it clear that with airlines now expected to burn cash throughout 2021 it is vital that governments and the industry are fully prepared to restart the moment governments agree that it is safe to re-open borders.

To do that, three initiatives are critical:

Planning: Preparing the industry to safely restart after a year or more of disruption will take careful planning and months of preparation. Governments can ensure that airlines are prepared to reconnect people and economies by working with industry to develop the benchmarks and plans that would enable an orderly and timely restart.

“The UK has set a good example. Earlier this week it laid out a structure for re-opening based on an improvement in the COVID-19 situation. This gives airlines a framework to plan the restart, even if it needs to be adjusted along the way. Other governments should take note as a best practice for working with industry,” said de Juniac.

Health Credentials: It is becoming clear that vaccines and testing will play a role as the pandemic comes under control and economies ramp up, including the travel sector. The IATA Travel Pass will enable travelers to securely control their health data and share it with relevant authorities. A growing list of airlines—including Air New Zealand, Copa Airlines, Etihad Airways, Emirates, Qatar Airways, Malaysia Airlines, RwandAir, and Singapore Airlines—have done or are committed to doing trials with IATA Travel Pass.

Said de Juniac: “Efficient digital management of health credentials is vital to restart. Manual processes will not be able to cope with volumes once the recovery begins. Digital solutions must be secure, work with existing systems, align with global standards and respect data privacy. In developing the IATA Travel Pass these are fully in focus.”

He explained that: “The IATA Travel App will help to set the bar very high for managing health credentials, protecting against fraud and enabling a convenient travel process. While there is choice in the market for solutions, there should be no compromise on the fundamentals, or we risk failing systems, disappointed governments and travelers, and a delayed restart.”

Global Standards: As vaccination programs and testing capacity expand, two developments have become critical—global standards to record tests and vaccines; and a plan to retrospectively record those who have already been vaccinated.

And de Juniac made it clear that: “Speed is critical. Fraudulent COVID-19 test results are already proving to be an issue. And as vaccine programs ramp up governments are using paper processes and differing digital standards to record who has been vaccinated. These are not the conditions needed to support a successful restart at scale when governments open borders. The WHO, ICAO, and OECD are working on standards, but each day without them means the challenge gets bigger. We need an early conclusion by competent authorities that the industry can plan around.”

IATA’s boss continued: “Even as governments focus on managing the COVID-19 crisis, we must be thinking a step ahead to the plans, tools and standards needed to restart flying and energize the economic recovery from COVID-19. Working in partnership is nothing new for airlines or for governments. It’s how we have delivered safe, efficient, and reliable connectivity for decades.”

He pointed out that: “For a year it’s been lockdowns and restrictions as vaccines were developed and testing capacity expanded. The reason for all the pain that this has caused is to keep people safe and to eventually be able to retore their well-being and that of the economy. With good news on vaccines and growing testing capacity, there is a glimmer of light at the end of the tunnel. So, it’s the time to ask governments for their restart plan and to offer any support from industry that could help.”

Go to www.iata.org for more.

 

 

Posted in Airlines, COVID-19, News, Trends & Research

 

 

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