The International Air Transport Association (IATA) says the global airline industry is expected to collectively post a loss of US$39 billion in the three months to June 30, 2020 as the coronavirus pandemic cripples demand.
Travel bans and rules restricting the movement of billions of people by national governments have resulted in airlines grounding hundreds of aircraft and decimated passenger revenues.
As a consequence, IATA figures published on March 31 estimated airlines would go through US$61 billion in cash reserves in the second quarter of calendar 2020, to June 30.
According to IATA’s analysis, the second quarter would see a 71 per cent drop in demand, but revenue would fall by slightly less at 68 per cent through continued cargo operations. Variable costs are expected to drop sharply at around 70 per cent, which would align with a 65 per cent cut in second-quarter capacity. While the cost of fuel has dropped sharply, hedging would likely see that benefit capped at 31 per cent.
Airlines are also faced with the challenge of refunding sold but unused tickets as a result of numerous cancellations resulting from government-imposed restrictions on travel. The second-quarter liability for these is a massive US$35 billion “Airlines cannot cut costs fast enough to stay ahead of the impact of this crisis. We are looking at a devastating net loss of US$39 billion in the second quarter. The impact of that on cash burn will be amplified by a US$35 billion liability for potential ticket refunds. Without relief, the industry’s cash position could deteriorate by US$61 billion in the second quarter,” said Alexandre de Juniac, IATA’s Director General and CEO.
De Juniac also added, “Travel and tourism is essentially shut down in an extraordinary and unprecedented situation. Airlines need working capital to sustain their businesses through the extreme volatility. Canada, Colombia, and the Netherlands are giving a major boost to the sector’s stability by enabling airlines to offer vouchers in place of cash refunds. This is a vital time buffer so that the sector can continue to function. In turn, that will help preserve the sector’s ability to deliver the cargo shipments that are vital today and the long-term connectivity that travelers and economies will depend on in the recovery phase.”
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