Aviation industry calls for stimulus as passenger slump continues

The global aviation market is set to burn though $7 billion a month as the industry’s association called on global governments to do more to avoid a wholesale collapse.

The International Air Transport Association (IATA) has urged governments to add market stimulation measures to the support they are giving to keep aviation financially viable.

It said that such measures would encourage travel while systematic testing protocols enable a safe re-opening of borders. The call came as the association revealed the recovery of passenger demand continued to be disappointingly slow in October.

IATA said it recognised since the onset of the COVID-19 pandemic, governments have helped airlines survive the crisis with approximately $173 billion in various forms of financial support.

However, it warned more support will be needed in the form of financial stimulus. IATA added many of the support packages are running out, but industry losses continue to mount.

“Airline losses are now forecast to top $118 billion this year and nearly $39 billion in 2021,” it said. “The industry is expected to continue burning through cash at a rate of almost $7 billion per month in the first half of 2021.”

Any additional financial support must come in ways that do not further inflate debt which has risen by 51.4% in the crisis to $651 billion. To put this into perspective, total industry revenue in 2021 is expected to be $459 billion.

“Financially viable airlines will be needed to lead the economic recovery from the depths of the COVID-19 crisis. Government support of $173 billion has helped many survive. With potential to safely re-open borders and revive travel with testing, governments will need to add measures that stimulate demand. Such targeted initiatives will help generate revenues, avoid adding debt to airlines, and immediately generate economic activity across the value chain,” said Alexandre de Juniac, IATA’s Director General and CEO.

IATA has identified five proven ways that governments can help stimulate the air travel market while avoiding adding more debt to already highly leveraged airline balance sheets:

Temporary waivers or suspensions of government charges, taxes and fees to airlines and passengers will reduce flight costs and lower travel costs for passengers

Route subsidies for flights to local/regional destinations to support connectivity for rural communities and business

Financial incentives in the form of rewards for operating flights, or seats flown, which can support airlines while load factors or yields are too low

Advance ticket purchases that governments can use for future trips or distribute to the traveling public in the form of vouchers to support travel and tourism.

Passenger travel subsidies in the form of vouchers for passengers or as a percentage cash-back on overall travel costs.

“In normal times, aviation supports more than 87 million jobs and $3.5 trillion in GDP contribution worldwide,” explained the association. “But 46 million jobs and $1.8 trillion in economic activity supported by aviation have been put at serious risk by the dramatic fall in travel demand.”

“A robust economic recovery needs people to start traveling again. Every job in aviation supports a further 29 jobs, demonstrating the broad impact that re-connecting the world will have. There are many good ideas out there. Any government stands to benefit by including proven stimulus measures into their economic recovery plans. When people travel, economies prosper and grow,” said Mr de Juniac.

New figures highlight the crisis the industry is facing.

Total demand (measured in revenue passenger kilometres or RPKs) was down 70.6% compared to October 2019. This figure was a modest improvement from the 72.2% year-to-year decline recorded in September. Capacity was down 59.9% compared to a year ago and load factor fell 21.8 percentage points to 60.2%.

International passenger demand in October was down 87.8% compared to October 2019, virtually unchanged from the 88.0% year-to-year decline recorded in September. Capacity was 76.9% below previous year levels, and load factor shrank 38.3 percentage points to 42.9%.

“Fresh outbreaks of COVID-19 and governments’ continued reliance on heavy-handed quarantines resulted in another catastrophic month for air travel demand. While the pace of recovery is faster in some regions than others, the overall picture for international travel is grim. This uneven recovery is more pronounced in domestic markets, with China’s domestic market having nearly recovered, while most others remain deeply depressed,” added Mr de Juniac.