IATA's latest analysis of the COVID19 crisis shows
that airlines could burn through $61 billion of their cash
reserves during Q2 2020 ending 30 June, while posting a quarterly
net loss of $39 billion.
This analysis is based on a scenario in which severe travel
restrictions last for three months. In this scenario, full-year
demand falls by 38% and full-year passenger revenues drop by $252
billion compared to 2019. The fall in demand would be the deepest
in Q2, with a 71% drop.
will be severe, driven by the following factors:
Revenues are expected to fall by 68%. This is less than the
expected 71% fall in demand due to the continuation of cargo
operations, albeit at reduced levels of activity.
costs are expected to drop sharply - by some 70% in the second
quarter - largely in line with the reduction of an expected 65% cut
in second quarter capacity. The price of jet fuel has also fallen
sharply, although IATA estimates that fuel hedging will limit the
benefit to a 31% decline.
- Fixed and semi-fixed costs amount
to nearly half an airline’s cost. IATA expects semi-fixed costs
(including crew costs) to be reduced by a third. Airlines are
cutting what they can, while trying to preserve their workforce
and businesses for the future recovery.
changes to revenues and costs result in an estimated Q2 net loss
of $39 billion.
On top of
unavoidable costs, airlines are faced with refunding sold but
unused tickets as a result of massive cancellations resulting from
government-imposed restrictions on travel. The second quarter
liability for these is a colossal $35 billion. Cash burn will be
severe. IATA estimates airlines could be burning through $61 billion
of their cash balances in the second quarter.
“Airlines cannot cut costs fast enough to stay ahead of the impact
of this crisis. We are looking at a devastating net loss of $39
billion in the second quarter. The impact of that on cash burn
will be amplified by a $35 billion liability for potential ticket
refunds. Without relief, the industry’s cash position could
deteriorate by $61 billion in the second quarter,” said Alexandre
de Juniac, IATA’s Director General and CEO.
governments are responding positively to the industry’s need for
relief measures. Among countries providing specific financial or
regulatory aid packages to the industry are Australia, China,
Colombia, New Zealand, Norway, Singapore and the United States. Most
recently Canada, Colombia, and Netherlands have relaxed
regulations to allow airlines to offer passengers travel vouchers
in place of refunds.
“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,” said de Juniac.