courtesy: nasa

MIAMI – The International Air Transport Association (IATA) published today a new analysis showing that airlines may burn through US$61bn of their cash reserves during Q2, posting a quarterly net loss of US$39bn.

According to Alexandre de Juniac, IATA’s Director General and CEO, Chief Economist Brian Pearce’s analysis is based on the impact assessment IATA released last week, under the assumption that severe travel restrictions will last for three months.

In the current trimester, full-year demand is estimated to fall by 38% and full-year passenger revenues to drop by US$252bn compared to 2019. These changes to revenues and costs result in an estimated net loss of US$39bn with a 71% drop in passenger demand in Q2.

Estimated COVID-19 impact on airline revenue for 2020

According to IATA’s press release, the organism notes that the impact will be severe in the following areas:

  • Revenues are expected to fall by 68%. This is less than the expected 71% 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% in the second quarter—largely in line with the reduction of an expected 65% cut in Q2 capacity. The price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31% decline. 
  • Fixed and semi-fixed costs amount to nearly 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 future recovery. 

Balance Sheet Liquidity (Cash Equivalents Coverage of Revenues*)

*Latest available 12 months cumulative revenues Africa, Latin America, and the Middle East might not be representative due to small sample size.

In the coming months, liability for airlines will mount to US$35bn. In addition, IATA estimates airlines could burn through $61 billion of their cash balances in Q2.

Worldwide RPKs, % change year-on-year

Furthermore, apart from normal costs, airlines will have to refund sold but unused tickets due to the high number of flight cancelations as a result of government-imposed restrictions on international travel.

“Airlines cannot cut costs fast enough to stay ahead of the impact of this crisis…Without relief, the industry’s cash position could deteriorate by US$61bn in the second quarter,” said de Juniac.

Airline industry cash burn forecast for Q2 2020

Reiterating a call for government support

De Juniac’s remarks at today’s IATA Media Briefing on COVID-19 touched on the positive fact that several governments have responded to the industry’s need for relief measures.

Countries providing financial support include Colombia, the United States, Singapore, Australia, China, New Zealand, and Norway. Also, Brazil, Canada, Colombia, and the Netherlands have relaxed regulations to allow airlines to offer passengers travel vouchers in place of refunds.

Still, de Juniac reiterated that due to the current travel and tourism shut down, airlines would need working capital to sustain their businesses through “extreme volatility”.

“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.

Worldwide airlines capacity (ASKs) and oil prices (Brent)

COVID-19 Cash burn analysis infographics courtesy of Brian Pearce, Chief Economist, IATA, March 31, 2020.