New Telegraph

Airline industry moves to cut losses by $79bn in 2021

88m jobs at risk

Slow vaccination in Africa limits travel

The International Air Transport Association (IATA) has estimated that the airline industry is expected to lose $47.7 billion in 2021 (net profit margin of -10.4%), adding that this is an improvement on the estimated net industry loss of $126.4 billion in 2020 (net profit margin of -33.9%). Director-General of the clearing house for over 290 global airlines, Willie Walsh, in a virtual conference held yesterday on update on industry financial outlook for 2021, disclosed that the crisis was longer and deeper than anyone could have expected, stressing that losses would be reduced from 2020, with the pain of the crisis increasing.

He noted that in the meantime, a significant portion of the $3.5 trillion in GDP and 88 million jobs supported by aviation were at risk. Most governments, he further explained, had yet to provide clear indications of the benchmarks that they will use to safely give people back their travel freedom. Effectively restarting aviation, he said, would energise the travel and tourism sectors and the wider economy, noting that with the virus becoming endemic, learning to safely live, work and travel with it was critical.

“That means governments must turn their focus to risk management to protect livelihoods as well as lives,” said Walsh. According to him, “There is optimism in domestic markets where aviation’s hallmark resilience is demonstrated by rebounds in markets without internal travel restrictions.

Government imposed travel restrictions, however, continue to dampen the strong underlying demand for international travel. Despite an estimated 2.4 billion people travelling by air in 2021, airlines will burn through a further $81 billion of cash.” This is coming amid report that African carriers will see slow vaccination rates limit international travel. With only 14 per cent of the region’s RPKs generated on domestic markets, this will provide little cushion. According to IATA, relatively weak economic growth will also limit the extent of pent-up demand.

Nonetheless, net losses are expected to fall this year, from -32 per cent of revenue in 2020 to -24 per cent. Walsh further disclosed that the group’s immediate priority in the face of ongoing crisis occasioned by COVID-19, pointed to start of industry recovery in the later part of 2021. IATA continues to urge governments to have plans in place so that no time is lost in restarting the sector when the epidemiological situation allows for a reopening of borders.

Industry losses of this scale, he reiterated, implied a cash burn of $81 billion in 2021 on top of $149 billion in 2020. Government financial relief measures and capital markets have been filling this hole in airline balance sheets, preventing widespread bankruptcies according to the IATA chief, maintaining that the industry will recover, but more government relief measures, particularly in the form of employment support programmes, will be needed this year.

“Owing to government relief measures, cost-cutting and success in accessing capital markets, some airlines appear able to ride out the storm. Others are less well-cushioned and may need to raise more cash from banks or capital markets. “This will add to the industry’s debt burden, which has ballooned by $220 billion to $651 billion.

There is a definite role for governments in providing relief measures that ensure critical employees and skills are retained to successfully restart and rebuild the industry,” said Walsh. He, however, passed a verdict that the whole industry will come out of the crisis financially weakened, just as he rekindled hope that cost containment and reductions, wherever possible, will be key to restoring financial health. “Containing and reducing costs will be top of mind for airlines. Governments and partners must have the same mentality. And that must be reflected in items big and small.

There can be no tolerance for monopoly infrastructure suppliers gouging their customers to recoup losses through higher charges. “Equally, we demand an end to the extortionate costs for COVID-19 testing with governments taking their cut on top of that with taxes. Everyone must be aligned in understanding that increased travel costs will mean a slower economic recovery. Cost reduction efforts on all sides are needed,” he said.

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