Airlines to Lose $39bn in Second Quarter Says IATA

• Airlines to Lose $39bn in Second Quarter Says IATA

The International Air Transport Association (IATA) has said global airline companies will post a combined $39 billion loss in the second quarter of 2020.

According to the association, the airlines will burn through their $61 billion cash reserves during the second quarter ending 30 June 2020 and posted a combined loss of $39 billion.

This they attributed to a 38 percent fall in demand and a $252 billion declines in full-year revenue when compared with 2019.

The association, therefore, said the impact would be substantial as revenues were projected to decline by as much as 68 percent this year.

“This is less than the expected 71 per cent fall in demand due to the continuation of cargo operations, albeit at reduced 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,” the association said.

“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 added.

Airlines have been refunding sold but unused tickets, grounding flight operations on numerous routes and countries as they struggle to curb the spread of COVID-19.

Alexander de Juniac, the Director-General, IATA, said “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.”

He 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 travellers and economies will depend on in the recovery phase.”