Montreal-based International Air Transport Association (IATA) Tuesday forecasted that airlines across the world could expend $61 billion of their cash reserves and record a quarterly net loss of $39 billion in the second quarter of this year.
According to the trade association, it arrived at the estimates on the premise of impact assessment in the context of acute travel constraints and restriction lasting for three months.
IATA, which represents about 290 airlines and 82% of global air traffic, said the current grave situation of the airline industry would “cut industry revenues by $252 billion in 2020 compared to 2019.”
“When borders are closed and people’s mobility is limited by governments, our business disappears. And, of course if we cannot move people, that impact is felt across the economy, not least of which in the tourism sector.
“And when 70% your business vanishes overnight, there is no amount of cost cutting that can adequately fill the gap,” Alexandre de Junaic, the IATA chief said.
The IATA envisaged a 71% plunge in demand resulting from continuation of cargo operations at lower levels of activity.
“Variable costs are expected to drop sharply—by some 70 per cent in the second quarter—largely in line with the reduction of an expected 65 per cent cut in second quarter capacity. The price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31 per cent decline.
“Fixed and semi-fixed costs amount to nearly a half an airline’s cost. We expect 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. These changes to revenues and costs result in an estimated net loss of $39bn in the second quarter,” it said.
Airlines would have to grapple with the necessity of refunding sold tickets hitherto unused on the account of vast flight cancellations across the industry.
Through this alone, liability worth $35 billion would be incurred in the second quarter, the IATA revealed.
“We are looking at a devastating net loss of $39bn in the second quarter. The impact of that on cash burn will be amplified by a $35bn liability for potential ticket refunds. Without relief, the industry’s cash position could deteriorate by $61bn in the second quarter,” De Junaic said.
He identified countries providing financial or regulatory support as well as relief packages to the industry as the US, Norway, China, Colombia, Singapore, New Zealand and Australia.
De juniac observed that lately Netherlands, Canada, Brazil and Colombia had made their laws less strict so as to enable their airlines give travel vouchers in place of refund.