COVID-19: Airlines to post $39b loss Q2-IATA

• Full year passenger revenue to drop by $252b

The International Air Transport Association (IATA) today painted a grim picture of what global airlines are exposed to occasioned by the ravaging CoronaVirus pandemic that has grounded airlines around the world.

Travel and tourism is essentially shut down in an extraordinary and unprecedented situation.

The new IATA analysis shows that airlines may burn through $61 billion of their cash reserves during the second quarter ending 30 June 2020, while posting a quarterly net loss of $39 billion.

The clearing house for over 290 airlines in its impact assessment of COVID-19 to airlines said full year passenger revenue would drop by $252 billion compared to 2019.

It said impact will be severe, driven by the fact that revenues are expected to fall by 68 per cent.

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

The group equally projected that 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.

It noted that the price of jet fuel has also fallen sharply, although it estimated that fuel hedging will limit the benefit to a 31 per cent decline.

On the other hand, fixed and semi-fixed costs amount to nearly half an airline’s cost, stressing that they  expect semi-fixed costs (including crew costs) to be reduced by a third.

Airlines are said to be cutting what they can, while trying to preserve their workforce and businesses for the future recovery.

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. We estimate airlines could be burning through $61 billion of their cash balances in the second quarter.

IATA’s Director General and CEO, Alexandre de Juniac said,” “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”.

He disclosed that several 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 Colombia, the United States, Singapore, Australia, China, New Zealand and Norway.

He stated that most recently, Brazil, Canada, Columbia, and the Netherlands have relaxed regulations to allow airlines to offer passengers travel vouchers in place of refunds.

“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.

Wole Shadare