A new financial analysis by the International Air Transport Association (IATA) shows that the group severely underestimated cash burn estimates for airlines this year and that the industry as a whole will remain “cash negative” through 2021. No longer expecting airlines to return to breakeven cash flow by the fourth quarter, IATA now sees a cash burn range of between $75 billion and $95 billion, compared with a November 2020 estimate of $48 billion.
In a statement released Wednesday, the group noted it has already become clear that the first half of 2021 will see far greater losses than earlier anticipated because of tightening travel restrictions in response to new Covid-19 variants. Forward bookings for July and August already show a 78 percent decline from February 2019, said IATA.
In its now most optimistic scenario, in which travel restrictions gradually lift once vulnerable populations in developed economies receive vaccines in time to “facilitate tepid demand over the peak summer travel season in the northern hemisphere," IATA sees demand reaching 38 percent of 2019 levels. The resulting $7 billion cash burn in the fourth quarter would represent a significant improvement over the $33 billion IATA expects airlines to burn in the first quarter.
IATA’s pessimistic scenario would see governments retaining significant travel restrictions through the peak northern summer travel season, resulting in a total cash burn of $95 billion for the year. In that case, cash burn would improve from $33 billion in the first quarter to $16 billion in the fourth quarter as demand returns to only 33 percent of 2019 levels.
“More emergency relief from governments will be needed,” said IATA director general Alexandre de Juniac. “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 cautions that readying the industry to safely restart after a year or more of disruption will take careful planning and months of preparation. Governments can help airlines prepare by working with industry to develop the benchmarks and plans that would enable an orderly and timely restart, it added.
“The UK has set a good example,” said de Juniac. “Earlier this week it laid out a structure for reopening 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.”
A successful restart will also require a way to efficiently verify health credentials, said IATA, through the use of its Travel Pass tool, which allows travelers to control their health data and share it with authorities. So far Air New Zealand, Copa Airlines, Etihad Airways, Emirates, Qatar Airways, Malaysia Airlines, RwandAir, and Singapore Airlines have performed trials or have committed to testing IATA's Travel Pass.
“Efficient digital management of health credentials is vital to restart,” noted de Juniac. “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. 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.”
Finally, speedy progress toward recovery will require global standards for vaccination and testing and a plan to “retrospectively record” those already vaccinated, said IATA.
“Speed is critical,” remarked de Juniac. “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.”