Dubai: Airlines will "burn through" $77 billion of their reserves in the last six months of this year, to pay off the higher expenses related to aircraft maintenance as well as meet wage commitments. They will not be helped by revenues that will remain weak during this period, according to IATA.
They will also be impacted by the stopping of government programmes that had helped flight operators stay afloat during the first-half of 2020, the International Air Transport Association added.
Airlines collectively used $51 billion of their cash balances between April to end June. While they have been able to cut fuel costs, other expenses like “maintenance costs or labor costs are much more difficult to reduce and that is why airlines are still burning through cash – they’re still making significant losses,” said Brian Pearce, IATA’s Chief Economist.
“This led us to re-estimate what we thought was happening to cash burn in the second quarter of this year - we think the second quarter was probably going to be the worst for the industry (and) certainly the low point for air travel.”
No way out
Passenger revenues will be down 75 per cent by the end of the year due to fares and yields being lower than last year, IATA said. While revenue declines can’t be helped, the shift towards short-haul flights has made it hard for airlines to keep their costs in check.
“Most of the travel taking place today is short-haul, which requires a lot more aircraft to serve the same passenger kilometers," the official added. "This also means it's difficult for airlines to cut their fleet costs proportionately to the fall in in revenues.”
A halt to aid
Worldwide, the only reason airlines made it this far was government support in the form of direct bailouts and wage subsidies. During the pandemic, airlines received $160 billion in aid from states and another $20 billion from suppliers.
“That has been life support for the world's airlines; we've only seen 30 or 40 airlines either fail or go into bankruptcy restructuring,” said Pearce.
However, governments are getting ready to pull the plug on these arrangements. “If we look at the expected end dates for those wage subsidy programmes, a significant number are supposed to be coming to an end. That makes sense when we look at the broader economy that is recovering strongly, (but) the airline industry is certainly not strong enough.”
