Turnaround in the airline industry has been hindered by rising COVID-19 cases, as the sector doesn’t seem to be able to cut costs to neutralize and recoup losses to stop from going bankrupt and continue retaining employees by next year, according to International Air Transport Association ( IATA). Stefano Baronci, Director General, Airports Council International (ACI) Asia-Pacific, stated that airport revenue generation is directly linked to traffic levels. The flight bans and cancellations are leading to less flights, hence less aeronautical revenue coming in. Thus, it also impacts the community and all of the personnel working with the various sectors and service providers at the airport.
The overall market sales are further projected to decline to 46% in 2021 from US$ 838billion in 2019. Traffic is predicted to decline by 60% this year versus 2019 and demand for December, traditionally a peak month, is down 68%. International travel demand is down 90%, causing long-haul aircrafts to become grounded. Instead, airlines are relying on short-haul flights.
In terms of costing, about 50% of the airline prices are either fixed or semi-fixed. In order to break even in 2021, unit costs need to be reduced by 30%. However, the airline industry isn’t able to bring the leasing costs above 10%, despite the fact that 60% of the global fleet is leased. Fuel is the only pro in this situation at this moment, having come down by 42% since 2019.
There are more job cuts as well as pay cuts which are required in order to reduce unit labour costs by half from the costs in the third quarter of 2020. Unless policymakers make a move soon, about 1.3 million airline workers are at risk of losing their jobs. The domino effect that this will put into motion will threaten 3.5 million additional workers in the aviation industry along with 46 million people in the wider economy whose jobs rely upon the aviation industry, according to IATA.
Global GDP will also be affected quite significantly with the lack of airline connectivity, which will disrupt economic growth encompassing US$ 1.8 trillion. Even with the job cuts, IATA says the net expense remains higher than sales in 2021, and airlines are looking at burning a deep hole within their own pockets. Financial security is not in reach for now for the airline industry even if they have significant cost cuts.