News

Vaccine may be too late to save carriers from collapse

Many airlines will run out of cash before a vaccine becomes widely available next year, Iata has warned.

The result will be failures and an overhang of debt for many carriers that will take years to pay down, according to Iata chief economist Brian Pearce.

Speaking ahead of Iata’s annual general meeting (AGM), Pearce said a cash injection of $173 billion from governments this year “has kept airlines alive”.

But he said: “The problem now is airlines are finding traffic just too low to support services.

“Airline debt has gone up more than 50% to $280 billion. Airlines have to be able to service that debt and have money left over to refurbish fleets and pay debt down. It is going to take years.

“It is going to slow down expansion. It could slow down fleet renewal.

“It’s inevitable we will see a more consolidated industry. We’ll get consolidation through some airline failures and also though mergers and joint ventures of the kind we have seen before.”

Pearce told the Iata AGM: “It looks likely revenues will be some 50% lower in 2021 than pre-crisis forecasts. The industry needs to downsize costs by an equivalent amount.

“We expect cash burn to continue through the first half of 2021. A vaccine raises the possibility the industry can start turning around. The trouble is by that time many airlines may have run out of cash.

“The average airline had eight or nine months before they ran out of cash at the mid-point of this year, so they will run out at the end of March.”

He noted: “We see there is pent up demand for leisure travel and for visits to friends and relatives. But business travel will be much slower to recover. It means yields will be much lower than normal.

“We’ll see fewer city pairs with sufficient passenger flows to justify point-to-point traffic, so we’ll see a concentration on hubs.”

He described the impact on long haul as “a challenge” and said, “with vaccine distribution, it might be emerging markets are slower to recover”.

Pearce argued that coronavirus health measures should not be retained longer than needed. He said: “A big worry is that the measures introduced after a crisis sometimes never disappear. We saw this after 9/11

“Health measures to deal with the coronavirus should not cause issues for airlines or problems for passengers longer than is necessary.”

Share article

View Comments

Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.