The airline industry is expected to remain cash negative throughout 2021 as the coronavirus pandemic continues to have an impact on tighter travel restrictions, a newly released analysis by IATA has found. This is a drastic turnaround from its previous analysis, released in NOV 2020, which indicated that airlines would turn cash positive by the fourth quarter of 2021.
IATA’s estimates for cash burn in 2021 have ballooned to the US$75 billion to $95 billion range from a previously anticipated $48 billion. According to the association, the following factors play into this estimate:
- 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 are currently 78 per cent below levels in FEB 2019.
- 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, IATA says 2021 demand would be 38 per cent of 2019 levels. Airlines would burn through $75 billion of cash over the year. But cash burn of $7 billion in Q4 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. 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 per cent of 2019 levels.
“With governments having tightening 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. 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,” said Alexandre de Juniac, IATA’s Director General and CEO.
With airlines now expected to burn cash throughout 2021, IATA says 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. The association urges governments to take action on three initiatives:
Planning - Preparing the industry to safely restart after a year or more of disruption will take careful planning and months of preparation.
Health Credentials - Vaccines and testing will play a role as the pandemic comes under control and economies ramp up. IATA says its Travel Pass, which is expected to launch within weeks, will enable travellers to 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.
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, IATA says.
