Dubai: Cash generation is now in sight, but it might not arrive before the end of this year, said Brian Pearce, Chief Economist of the International Air Transport Association (IATA).
“I think we do have a very difficult three to six months ahead of us,” said Pearce during a virtual event on Wednesday.
“It’s clear that all markets, particularly some emerging markets and developing economies, will take longer,” he said. “So far, we’ve not really seen very much of an upturn which again is a concern for the short-term outlook,” he added.
There is demand
Whenever there has been a resumption in travel, bookings have surged particularly for VFR (visiting friends and relatives) and leisure travel, noted the top economist. “So, there is pent up demand,” he added.
“But as you can see subsequently, we’ve seen the impact of what happened in the UK with a new variant of the virus,” said Pearce. “And if we look at forward bookings, the immediate prospects are not good”
On life support
“We’ve not obviously seen very many airlines fail as a result (of the pandemic) and that is because governments in most countries have stepped in and filled that hole in the balance sheet,” said Pearce.
Governments have pumped almost $200 billion in various forms to date to keep airlines going, but that has come at a cost.
“The trouble is it has left the patient shackled with considerable debt and that is going to affect performance and behavior as the industry moves into a recovery phase,” said Pearce.
While that is a worrisome trend by itself, now it looks like airlines are heading to capital markets for cash. “We’ve seen a substantial increase in in debt raised on capital markets as well,” said Pearce.
The industry has raised its net debt by about 50 per cent over the past year to a figure amounting to about $650 billion, “which will surely shape behavior over the next few years,” added Pearce.