Airlines fighting for their lives, says International Air Transport Association - New Flyer International

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Airlines fighting for their lives, says International Air Transport Association
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Airlines fighting for their lives, says International Air Transport Association 

AIRLINES could lose US$61billion of their cash reserves during the second quarter ending 30 June 2020, whilst posting a quarterly net loss of $39 billion, if the Coronavirus global travel bans last for three months, forecasts the International Air Transport Association (IATA).

In IATA’s scenario, full-year demand will plummet by 38 percent and full-year passenger revenues will drop by $252billion in comparison with 2019.

The slump in demand would be the deepest in the second quarter, with a 71 percent drop, the statement warns.

IATA calculates that the impact will be most severe as a result of the following factors:

  • Revenues are expected to decline by 68 percent – this is less than the expected 71 percent fall in demand due to the continuation of emergency cargo operations, albeit at reduced levels of activity;
  • Variable costs are expected to drop sharply – by some 70 percent in the second quarter – largely in line with the reduction of an expected 65 percent cut in second-quarter capacity. Although the price of jet fuel has also fallen sharply, IATA estimates that fuel-hedging will limit the benefits to a 31 percent decline;
  • Since fixed and semi-fixed costs amount to nearly half of an airline’s costs, the association expects semi-fixed costs, including crew costs, to be reduced by a third: “Airlines are cutting what they can, whilst trying to preserve their workforce and businesses for the future recovery.”

These changes to revenues and costs will result in an estimated net loss of $39billion in the second quarter, the association says.

“On top of unavoidable costs, airlines are [also] faced with refunding sold but unused tickets as a  result of massive cancellations resulting from government-imposed restrictions on travel,” asserts the airline association.

“The second quarter liability for these is a colossal $35 billion. The cash burn will be severe. We estimate airlines could be burning through $61billion of their cash balances in the second quarter.”

Alexandre de Juniac, director-general and chief executive of IATA, argues that carriers “cannot cut costs fast enough” to stay ahead of the impact of this crisis.

“We are looking at a devastating net loss of $39billion in the second quarter. The impact of that on cash burn will be amplified by a $35billion liability for potential ticket refunds. Without relief, the industry’s cash position could, therefore, deteriorate by $61billion in the second quarter,” he warns.

The airline association has commended those governments which have answered the plea from carriers for financial or regulatory aid packages. They include Colombia, the United States, Singapore, Australia, China, New Zealand, and Norway.

Most recently, Brazil, Canada, Colombia, and the Netherlands have relaxed their regulations to allow airlines to offer passengers travel vouchers in place of refunds.

De Juniac underscores: “Travel and tourism are 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,” he insists.

 

 

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