IATA Fears Airline Industry In For Prolonged Cash Burn
IATA is concerned that its December 2020 forecast for traffic recovery may have been too optimistic and the airline industry will burn a lot more cash for longer than anticipated.
According to a new scenario released Feb. 24, IATA is now anticipating a combined industry cash-burn for 2021 of up to $95 billion, nearly doubling the $48 billion it predicted just two months ago. The worsened outlook could become reality if governments continue to tighten travel restrictions as they have over the past few weeks in their efforts to contain the spread of new coronavirus strains.
A less severe scenario sees a $75 billion cash burn for 2021, assuming travel restrictions are eased in developed countries once vulnerable groups are vaccinated. IATA estimated that airlines burned through more than $150 billion in cash in 2020.
The December 2020 base forecast assumed that air travel demand will return to 51% of 2019 levels for the full year of 2021. With more stringent restrictions in place, air traffic could be down to as low as 33% of pre-crisis volumes in 2021.
IATA director general and CEO Alexandre de Juniac said during a media briefing that the industry “will not withstand” the deteriorated situation without additional government support that could reach $80 billion for the first half of 2021. In 2020, the sector received around $200 billion of supports in various ways.
Chief economist Brian Pearce warned that the airline industry is now expected to continue to burn cash through the 2021 fourth quarter, which is when IATA previously believed the bleeding would stop. The deteriorated outlook raises “questions of survivability,” Pearce said.
Recently, bookings have weakened even in domestic markets that had recovered faster than the international business. For its forecast, IATA no longer expects significant border openings in time for the Easter holidays. A lot will depend on whether airlines can use the Northern summer to generate much needed cash. Forward bookings for travel in July and August are now 78% below what they were at the same time in 2019. While that is a reason for concern, typically only 7% of total capacity would have been sold even in normal times so early and recent trends have been for very late bookings.
De Juniac pointed to the UK as a “good example” of showing a roadmap for reopening. After the government revealed plans about how it plans to drop restrictions by the summer—and with the vaccination campaign progressing—the country’s airlines have witnessed an immediate and dramatic surge in bookings.
IATA also does not believe it needs to change its longer-term forecast that still anticipates a return to 2019 levels of flying by 2023 or 2024. Pearce pointed out that general economic forecasts are currently revised upwards and that consumers have large savings they want to spend. “There is a lot of pent-up demand,” Pearce said.