Desperate cost-cutting and job slashing 'is not enough to save airlines'

Published: 28 October 2020 - 4 a.m.

Most airlines are desperately trying to cut costs and conserve cash in any way they can but they will need to shed even more of their workforces if they want to survive the coronavirus crisis, the International Air Transport Association has said.

“While IATA is not advocating specific workforce reductions, maintaining last year’s level of labour productivity (ASKs/employee), would require employment to be cut 40 percent,” said Alexandre de Juniac, CEO of IATA, on Tuesday.

“Further jobs losses or pay cuts would be required to bring unit labour costs down to the lowest point of recent years, a reduction of 52 percent from 2020 Q3 levels.”

The aviation body said that although businesses have taken drastic steps to reduce costs, around 50% of airlines’ costs are fixed or semi-fixed, at least in the short-term. The result is that costs have not fallen as fast as revenues.

Even with a 40 percent reduction in workforce sizes, total costs will still be higher than revenues in 2021 and airlines will continue to burn through cash, IATA said.

Airlines currently are forecast to burn through another $77 billion of cash before the year is out.

“Without additional government financial relief, the median airline has just 8.5 months of cash remaining at current burn rates. And we can’t cut costs fast enough to catch up with shrunken revenues,” de Juniac said.

Almost all carriers have reduced their workforces since the onset of the coronavirus pandemic. Cathay Pacific said earlier this month that it will cut around 5,300 jobs while Qantas and British Airways are also laying of thousands of staff.

Total industry revenues in 2021 are expected to be down 46% compared to the 2019 figure of $838 billion.
“The fourth quarter of 2020 will be extremely difficult and there is little indication the first half of 2021 will be significantly better, so long as borders remain closed and/or arrival quarantines remain in place,” said de Juniac.

Looking forward to 2021, IATA estimates that to achieve a breakeven operating result and neutralise cash burn, unit costs will need to fall by 30% compared to average CASK for 2020.

De Juniac said: “There is little good news on the cost front in 2021. Even if we maximise our cost cutting, we still won’t have a financially sustainable industry in 2021.”

Caling for additional financial relief and the re-opening of borders, de Juniac said that governments “must take firm action to avert this impending economic and labour catastrophe”.

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