International commercial aviation representative body the International Air Transport Association (Iata) published a new analysis on March 31 that indicated that the world’s airlines would, during the second quarter of this year, suffer a total net loss of $39-billion. They would also expend $61-billion of their cash reserves over the same three-month period (ending on June 30).
The main assumption behind this analysis was that the strict travel conditions now in force around the world, to counter the Covid-19 pandemic, would continue for three months. Should this be the case, air passenger transport demand would collapse by 71% during the second quarter. (The final result would be a 38% drop in demand for the whole year.)
Airlines, in the second quarter, were also faced with a $35-billion liability for tickets that they had sold but which could not be used because of travel restrictions imposed by governments. Their revenues were predicted to fall by 68% (not 71% because airlines were continuing to fly cargo operations, although fewer than normal).
Airline costs could be divided into fixed, semi-fixed (which together accounted for almost 50% of an airline’s costs) and variable. Iata expected that, during the second quarter, semi-fixed costs (which included crew costs) would be cut by 33%. It predicted that variable costs would be slashed by about 70% in the same period. Fuel prices had fallen significantly, but the association opined that the benefit would be limited, by fuel price hedging, to a reduction of 31%.
“Airlines cannot cut costs fast enough to stay ahead of the impact of this crisis,” alerted Iata director-general and CEO Alexandre de Juniac. “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.”
“Airlines need working capital to sustain their businesses through extreme volatility,” he stressed. “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.”