The International Air Transport Association (IATA) has released its latest analysis of the forthcoming quarter in which it predicts that airlines will burn through US$61 billion of their cash reserves up until June 30, leading to a quarterly net loss of US$39 billion.
The analysis is based on a continued severe restriction in travel for the next three months, resulting in a 38% fall in full-year demand and a drop of US$252 billion in passenger revenue, both figures compared to 2019 results. The second quarter would see a 71% drop in demand, but revenue would fall by slightly less at 68% through continued cargo operations. Variable costs are expected to drop sharply at around 70%, which would align with a 65% cut in second-quarter capacity. While the cost of fuel has dropped sharply, hedging would likely see that benefit capped at 31%.
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 that “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.”Email Post to a Friend