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IATA sees an even more complex picture for aviation where airlines face a rapid “burn” of cash given the crisis of the coronavirus.
The International Air Transport Association (THERE IT IS) released new analysis showing airlines will spend more than $61 billion of its cash reserves during the second quarter of the 2020, to pay your current expenses, that ends the 30 June 2020, while a quarterly net loss of $39 billion.
This analysis is based on the impact assessment that IATA published last week, in a scenario in which the severe travel restrictions last three months. In this stage, demand for the entire year falls by 38% and full-year passenger revenues fall by $252 billion compared to 2019. The drop in demand would be deeper in the second quarter of 2020, with a drop of 71%.
The impact will be severe, driven by the following factors:
- Revenue is expected to fall 68%. This is less than the expected drop in 71% in demand due to the continuation of cargo operations, although at reduced levels of activity.
- Variable costs expected to decrease dramatically, in a 70% in the second quarter, largely in line with the reduction of an expected cut of the 65% 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 decrease in 31%.
- Fixed and semi-fixed costs are equivalent to almost half the cost of an airline. Semi-fixed costs are expected (including crew costs) are reduced by a third. Airlines are reducing what they can, as they try to preserve their workforce and businesses for the future recovery.
- These changes in revenues and costs result in an estimated net loss in $39 billion in the second quarter.
In addition to the inevitable costs, Airlines face refunds for sold but unused tickets as a result of mass cancellations resulting from government-imposed restrictions. The responsibility of the second quarter for these is a colossal $ 35 billion. Cash burn will be severe. We estimate that airlines could be spending $ 61 billion of its cash balances in the second quarter.
“Airlines cannot reduce costs fast enough to get ahead of the impact of this crisis.”. We are seeing a devastating net loss of $39 billion in the second quarter. The impact of that on cash usage will be amplified by a liability of $35 billion for possible ticket refunds», said Alexandre de Juniac, Director General and CEO of IATA.
Several governments are responding positively to the industry need with support measures. Countries that provide specific financial or regulatory aid packages to the industry include Colombia so far., USA, Singapore, Australia, China, New Zealand and Norway. More recently, Canada and the Netherlands have relaxed regulations by allowing airlines to offer travel coupons to passengers instead of cash refunds..
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