Airlines industry cash negative
IATA sees world airlines burning cash through 2021
AIRPORT VOICE, MARCH 2021 5
The International Air Transport
Association (IATA) released new analysis
showing that the airline industry
is expected to remain cash negative
throughout 2021. Previous analysis
(November 2020) indicated that airlines
would turn cash positive in the
fourth quarter of 2021. At the industry
level, airlines are now not expected to
be cash positive until 2022.
Estimates for cash burn in 2021
have ballooned to the $75 billion to $95
billion range from a previously anticipated
$48 billion. 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 (July-August) are
currently 78% below levels in February
2019 (comparisons to 2020 are distorted
owing to COVID-19 impacts).
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
2021 demand would be 38% of 2019 levels.
Airlines would burn through $75
billion of cash over the year. But cash
burn of $7 billion in the fourth quarter
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. There would
be an improving trend from a $33 billion
cash burn in the first quarter
reducing to $16 billion in the fourth
quarter. 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% of 2019 levels.
“With governments having tightening
border restrictions, 2021 is
shaping up to be a much tougher year
than previously expected. Our bestcase
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 it is vital that
governments and the industry are
fully prepared to restart the moment
governments agree that it is safe to reopen
borders. That makes three initiatives
critical:
Planning
Preparing the industry to safely
restart after a year or more of disruption
will take careful planning and
months of preparation. Governments
can ensure that airlines are prepared
to reconnect people and economies by
working with industry to develop the
benchmarks and plans that would enable
an orderly and timely restart.
Health Credentials
It is becoming clear that vaccines
and testing will play a role as the pandemic
comes under control and economies
ramp up, including the travel
sector. The IATA Travel Pass will enable
travelers to securely 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.
“Even as governments focus on
managing the COVID-19 crisis, we
must be thinking a step ahead to the
plans, tools and standards needed
to restart flying and energize the
economic recovery from COVID-19.
Working in partnership is nothing
new for airlines or for governments.
It’s how we have delivered safe, efficient,
and reliable connectivity for
decades. For a year it’s been lockdowns
and restrictions as vaccines
were developed and testing capacity
expanded. The reason for all the pain
that this has caused is to keep people
safe and to eventually be able to retore
their well-being and that of the
economy. With good news on vaccines
and growing testing capacity, there
is a glimmer of light at the end of the
tunnel. So, it’s the time to ask governments
for their restart plan and to offer
any support from industry that
could help,” said de Juniac.
Interview AA’s
Doug Parker
March 15, 2021
American Airlines CEO Doug
Parker appeared on Squawk on
the Street today. He was excited to
speak about the current improved
passenger traffic saying that most
of the improvement has been on the
leisure side of the air travel business.
Business travel is not improved
but he said that with more companies
getting back to work in the
office this “pent up demand” will
translate into more the lucrative
business class business for AA towards
the back half of.2021. We are
ready for this increase, by having
done a nice job of cutting our costs,
and increasing out airline partner
network,
When asked about the perception
that AA was the airline in most
debt Parker said
Parker said “We do have higher
debt but we will naturally de-lever.
We needed to increase debt to
get through this crisis but as business
improves we will de-lever.” He
added, “ We certainly have more
than enough liquidity now. It feels
very much like demand is returning
as vaccinations take hold and
we will see the business demand increase
and bring us back to profitability
In addition he remarked, “We
are raising capital by financing
$10 billion offering Advantage Program
as part of the collateral, extension
of payroll support program,
all enabling AA be well positioned
to withstand whatever may continue
to happen.”