in Business & Finance

IATA: Airlines need to bring costs in line with revenues

Posted 27 October 2020 · Add Comment

The CEO of IATA Alexander de Juniac said in a media briefing today that for airlines to survive, they will need to bring costs in line with revenues.

"Careful management of costs will likely not see costs fall in proportion to reductions in flying," said Alexander de Juniac. Image: IATA

De Juniac said: “Doing that is a difficult balancing act because airlines must also preserve the capability to be able to safely and efficiently ramp up operations when demand picks up.

 

This is particularly challenging when you consider licensed personnel with long training periods. And that uptick in demand looks like it will take much longer than anybody could have anticipated. This crisis is not a few months of downturn. We are looking at much more than a year of severely depressed demand. The decisions taken in the next weeks and months to manage through the crisis will re-set aviation’s trajectory for several years to come.

 

Careful management of costs will likely not see costs fall in proportion to reductions in flying.

 

    Even with severe fleet reductions, price reductions from lessors are limited and the larger proportion of short-haul flying will force fleet unit costs upwards.

    Although fuel costs have fallen with the reduction in flying, there is an expectation of higher fuel prices in 2021.

    In the same way, although infrastructure costs have fallen in line with the drop in demand, our infrastructure partners will need to find solutions—including government relief—to fill budget gaps without increasing costs to airlines.

 

Labour is another major cost item. We are seeing significant job loss announcements as airlines try to adjust the size of the workforce. To maintain last year’s level of labor productivity (ASKs/employee), employment would need to be cut 40%. 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% from 2020 Q3 levels

 

Today’s analysis is yet another reminder of the need for our two most fundamental requests of governments in this crisis:

 

    Continued financial relief, in forms that do not increase the debt burden, and

    Using systematic pre-departure testing to safely re-open borders without quarantine measures

 

Other Issues

 

Although the news is bleak, I’d also like to remind everyone that the crisis has not killed the dedication of aviation to continuous improvements. And I have three examples of that this week:

 

    Yesterday I signed an agreement with the World Meteorological Organization aimed at expanding the number of airlines providing weather data during flight operations. This will help make up for the gap created by the sharp reduction in flying. This data collection supports better weather forecasting which has many uses, including safe flight operations.

    As we speak, the Global Accessibility Symposium has kicked off with airlines and regulators looking for ways to make travel better for passengers with disabilities—during the crisis and beyond.

    And last week we had the good news that aircraft will be able to overfly Israel and Jordan, making flight routings more efficient from a fuel and environmental perspective.”

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