Airlines face ‘extremely difficult’ time
AUCKLAND: Airlines cannot slash costs fast enough to cover severe cash burn to avoid bankruptcies and preserve jobs next year, an industry body says.
Total industry revenues in 2021 were expected to be down 46% compared with the 2019 figure of $US838 billion ($NZ1.2 trillion), the International Air Transport Association said.
This is a far worse outlook than earlier in the year, when it was calculated revenue would be down about 29% compared with last year.
This was based on expectations for a demand recovery in the fourth quarter of this year, but a resurgence of Covid19 in second and third waves around the world has put the brakes on air travel.
The association expected fullyear 2020 traffic to be down 66% compared with last year.
It has reiterated its call for government relief measures to sustain airlines financially and avoid ‘‘massive’’ layoffs, and has also called for preflight Covid19 testing to open borders and enable travel without quarantine.
The fourth quarter of the year ‘‘will be extremely difficult’’ and there was little indication the first half of next year would be significantly better, so long as borders stayed closed and/or arrival quarantines remained in place, association directorgeneral and chief executive Alexandre de Juniac said.
‘‘Without additional government financial relief, the median airline has just 8.5 months of cash remaining at current burn rates. And we can’t cut costs fast enough to catch up with shrunken revenues.’’
Air New Zealand — which has been rocked by Covid19 — last month said it had about $1 billion of liquidity, made up of $215 million of cash on hand and $790 million remaining on the $900 million government loan facility. The airline told shareholders it would burn through $65 million to $85 million of cash a month under current conditions.
The association said that although airlines had taken drastic steps to reduce costs, about 50% of them were fixed or semifixed.
‘‘The result is that costs have not fallen as fast as revenues,’’ Mr de Juniac said.
Yearonyear decline in operating costs for the second quarter was 48% compared with a 73% decline in operating revenues, based on a sample of 76 airlines.
Airlines had cut capacity (available seat kilometres, or ASKs) in response to the collapse in travel demand, meaning unit costs (cost per available seat kilometre, or CASK) had risen.
Preliminary results for the third quarter showed that unit costs rose about 40% compared with the yearago period.
Looking to 2021, the association estimated that to achieve a breakeven operating result and neutralise cash burn, unit costs would need to fall by an unprecedented 30% compared with average CASK for this year.
With international demand down nearly 90%, airlines had parked thousands of mostly longhaul aircraft and shifted their operations to shorthaul flying where possible.
However, because the average distance flown had fallen sharply, more aircraft were required to operate the network.
This had meant flown capacity was down 62% compared with January 2019, but the inservice fleet was down just 21%.
About 60% of the world aircraft fleet is leased. While airlines had received some reductions from lessors, aircraft rental costs had dropped less than 10% during the past year.
Mr de Juniac said fuel was the only bright spot; prices were down 42% on last year, but were expected to rise next year as increased economic activity raised energy demand.
The association was not advocating specific workforce reductions, but maintaining last year’s level of labour productivity (ASKs per employee) would require the workforce to be cut 40%. — The New Zealand Herald