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IATA downgrades 2021 revenue forecast
October 30th 2020
The International Air Transport Association (IATA) this week called for additional financial relief for airlines as it downgraded forecasts for revenue in 2021 due to the industry’s slow recovery from COVID-19. Read More »
The airline lobby group also published analysis that showed airlines would not be able to cut costs deep enough to offset expected revenue declines.
Total airline revenue in calendar 2021 is expected to be 46% lower than the US$838 billion generated in 2019, IATA said. The estimate represented a sharp deterioration from IATA's previous forecast of a 29% decline for the year.
The previous estimate was based around a demand recovery commencing in the final three months of 2020, the airline association said. That recovery had been delayed by new outbreaks of COVID-19 in various parts of the world and border closings and quarantine measures imposed by governments.
"Without additional government financial relief, the median airline has just 8.5 months of cash remaining at current burn rates," IATA CEO and director general, Alexandre de Juniac, told reporters this week. "And we can’t cut costs fast enough to catch up with shrunken revenues."
Unit costs, measured by cents per available seat kilometre (CASK), need to fall by 30% compared with the average CASK in 2020 to achieve a breakeven operating result and neutralise cash burn in 2021, IATA said, describing the decline as “without precedent”.
Airlines worldwide have implemented cost reduction measures, but they have not fallen as fast as revenue. Operating costs in the second quarter of calendar 2020 declined 48% compared with a 73% drop in operating revenue, based on a sample of 76 airlines, the association said.
IATA chief economist, Brian Pearce, said reduced landing and user charges due to less flying, a cheaper fuel bill and falling aircraft rental fees had helped lower costs. However, the "only sizeable option to cut costs sufficiently" was labour, with Pearce's slide presentation noting that if there were no job cuts there would be a 40% decline in productivity by 2021.
"By no means are we advocating job cuts," Pearce told reporters this week. "But we are drawing attention to the fact the industry just has to get smaller, at least for the next 12-18 months, given the much reduced outlook for travel and revenue.
"There must be some way of doing that without completely draining airlines of their cash reserves. If we are going to avoid significant numbers of airline failures over the next 12 months, either we are going to have to see a change in the revenue situation – so perhaps an effective testing regime allowing travel restrictions to be reduced – or we are going to need more support for the industry to preserve connectivity."
