Global airlines adding capacity faster than demand recovery
Global airlines are adding capacity at a faster rate than international travel demand growth in August and September, placing further pressure on cash flows and underscoring the urgent need for continued relief measures by governments. Closed borders, imposed quarantines and uncoordinated governments policies are among the major barriers to travel, making it more difficult for airlines to plan ahead for flight schedules, Brian Pearce, the chief economist of the International Transport Association (Iata) told reporters on Tuesday.
The gap between bookings and airline schedules is "widening and that gap unfortunately means airlines are probably burning cash as a result of the potentially disappointing slow improvements in demand," Mr Pearce said. "That leaves airline finances in a relatively fragile situation as governments are starting to pull back on the support given."
In July this year, global airlines recorded an 80 per cent drop in passenger travel demand compared to July 2019 while load factors, a measure of how well a carrier is filling available seats, fell to a record low of 58 per cent.
Middle East airlines posted a 93.3 per cent annual traffic decline in July, compared with a 96.1 per cent demand drop in June, Iata said in its monthly report on Tuesday. Capacity tumbled 85.6 per cent and load factor fell 43.4 percentage points to 38 per cent.
"Borders are largely closed and governments' management of travel restrictions is so unpredictable and uncoordinated that people are still not flying," Alexandre de Juniac, director-general of Iata said on an online conference call. "For the industry this is immensely frustrating, it is also frustrating for travellers...and it is tragic for the growing numbers of the unemployed whose livelihoods are being destroyed," he said. Airlines worldwide are facing a loss of $84.3 billion (Dh309.5bn) this year, a 50 per cent cut in revenues and high fixed costs for aircraft and labour as the Covid-19 pandemic decimates air travel demand.
With four in five air travellers staying at home, governments reopening then closing borders or removing then re-imposing quarantines, consumers do not have confidence to make travel plans nor airlines to rebuild their schedules, Iata said. While business confidence is more positive following the reopening of economies, the challenge is that consumers are feeling less confident as unemployment rates rise, which is reflecting in travel patterns, Mr Pearce said. "The number of premium tickets are actually growing at a similar pace to the growth of economy tickets... there might be some evidence that we're seeing some business travel albeit at relatively low levels," he said.
Iata is calling on governments to reopen borders, develop testing that reduces the risk of importing the virus and continue providing relief measures for airlines without increasing their debt burden, Mr de Juniac said. Iata advocates for Covid-19 testing that is reliable, scaleable, adaptable, more comfortable for travellers, and not reliant on complicated machinery or highly-trained personnel.
Governments have had an "uneven" approach to financial relief packages, with US and North American airlines well supported while those in major emerging markets such as Africa and Latin America have seen very little support, Mr Pearce said.
