Virus to erase RM1.7t from airline industry’s revenue in 2021, says IATA

The recovery has been delayed owing to Covid-19 outbreaks and govts have mandated travel restrictions

by SHAHEERA AZNAM SHAH / pic by BLOOMBERG

THE Covid-19 pandemic is expected to further hit the airline industry and erase about US$400 billion (RM1.68 trillion) of the industry’s revenue in 2021, said International Air Transport Association (IATA).

The aviation group said the estimation, which is a 46% decline from the revenue made in 2019, is lower than its previous expectations due to the re-emergence of the coronavirus cases.

“The total industry revenues in 2021 are expected to be down 46% compared to the 2019 figure of US$838 billion.

“The previous analysis was for 2021 revenues to be down around 29% compared to 2019. This was based on expectations for a demand recovery commencing in the fourth quarter of 2020 (4Q20).

IATA added, however, the recovery has been delayed owing to Covid-19 outbreaks and governments have mandated travel restrictions including border closings and quarantine measures.

For 2020, IATA anticipates the full-year traffic to be down by 66% compared to 2019, based on the 68% drop in demand for flights in December.

IATA DG and CEO Alexandre de Juniac (picture) said there has not been a visible indication that the demand for travel will recover for the medium term as international borders remain closed for many countries.

“The 4Q20 will be extremely difficult and there is little indication the 1H21 will be significantly better as long as borders remain closed and arrival quarantines remain in place,” he said.

De Juniac added that on average, airlines have only 8.5 months of cash reserves to survive based on the current expenses excluding the governments’ aid.

“There is little good news on the cost front in 2021. Even if we maximise our cost-cutting, we still won’t have a financially sustainable industry in 2021.

“We cannot cut costs fast enough to catch up with shrunken revenues,” he said.

Meanwhile, the cost-cutting measures adopted by airlines to neutralise their severe cash burn is insufficient to keep the industry afloat and preserve employment for next year, IATA said.

“IATA presents a new analysis showing that the airline industry cannot slash costs sufficiently to neutralise severe cash burn to avoid bankruptcies and preserve jobs in 2021.

“IATA reiterates its call for government relief measures to sustain airlines financially and avoid massive employment terminations and calls for pre-flight Covid-19 testing to open borders and enable travel without quarantine,” it said.

IATA chief economist Brian Pearce said the airlines have to shrink their unit costs by 30% from the average level in 2020 to match the anticipated “unprecedented fall” in 2021.

“Costs need to be downsized to match lower revenues in 2021 as it is estimated to be about 50% of pre-crisis expectations.

“The progress so far this year has been hampered by semi-fixed costs as the capacity collapsed and the decline required for unit costs to fall by 30% in 2021 from 2020 average to breakeven,” he said.

IATA said despite the cost-saving measures adopted by airlines, about 50% of their costs are fixed or semi-fixed which will put pressure on airlines to match with their declining revenue.

“Although airlines have taken drastic steps to reduce costs, around 50% of airlines’ costs are fixed or semi-fixed, at least in the short term. The result is that costs have not fallen as fast as revenues.

“For example, the year-on-year decline in operating costs for the 2Q was 48% compared to a 73% decline in operating revenues, based on a sample of 76 airlines,” it said.

De Juniac said about 1.3 million more jobs in the airline industry are at risk for the immediate term should the industry be expected to survive without financial relief.

“The handwriting is on the wall. For each day that the crisis continues, the potential for job losses and economic devastation grows. Unless governments act fast, some 1.3 million airline jobs are at risk.

“And that would have a domino effect putting 3.5 million additional jobs in the aviation sector in jeopardy along with a total of 46 million people in the broader economy whose jobs are supported by aviation.

“The loss of aviation connectivity will have a dramatic impact on global GDP, threatening US$1.8 trillion in economic activity,” he said.

Domestically, local airlines have reported retrenchments since the beginning of the pandemic as the travel restriction has put additional pressure on some of the already struggling carriers.

The latest, about 10% of the 24,000 employees of AirAsia Bhd and AirAsia X Bhd have been retrenched in the group’s most recent round of retrenchment in addition to the layoffs of more than 250 people in June.

According to a report, Malindo Airways Sdn Bhd is also planning to cut its workforce, trimming 2,200 jobs from the current 3,200 and reduce its fleet size to keep the company afloat.

Meanwhile, for the struggling Malaysia Airlines Bhd, another 20% of its workforce is expected to be reduced as job cuts are deemed “imminent” for the national carrier in the future.