KUALA LUMPUR (April 1):  Global airlines may burn through US$61 billion of their cash reserves during the second quarter ending 30 June 2020, while posting a quarterly net loss of US$39 billion, according to the International Air Transport Association (IATA).

In a statement March 31, IATA said its analysis is based on the impact assessment it released last week, under a scenario in which severe travel restrictions last for three months.

It said in this scenario, full-year demand falls by 38% and full-year passenger revenues drop by US$252 billion compared to 2019.

IATA said the fall in demand would be the deepest in the second quarter, with a 71% drop.

The association said revenues are expected to fall by 68%.

It said this is less than the expected 71% fall in demand due to the continuation of cargo operations, albeit at reduced levels of activity

IATA said 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 second quarter capacity.

It added that the price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31% decline.

Meanwhile, fixed and semi-fixed costs amount to nearly half an airline’s cost. 

IATA said it expects 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, it said.

IATA said these changes to revenues and costs result in an estimated net loss of US$39 billion in the second quarter.

IATA 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 US$39 billion in the second quarter.

“The impact of that on cash burn will be amplified by a US$35 billion liability for potential ticket refunds. Without relief, the industry’s cash position could deteriorate by US$61 billion in the second quarter,” he said.

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