The International Air Transport Association (IATA) has released its latest analysis in which it predicts that airlines may burn through US$61 billion (RM266 billion) of their cash reserves during the second quarter (Q2) of this year and post a quarterly net loss of US$39 billion (RM170 billion) if severe travel restrictions related to COVID-19 last for three months.

In this scenario, full-year demand would fall by 38% and passenger revenue will see a drop of US$252 billion as compared to 2019 results. The second quarter would see a 71% drop in demand, but revenue would fall by slightly less at 68% through continued cargo operations. Variable costs are expected to drop sharply at around 70%, which would align with a 65% cut in second-quarter capacity. While the cost of fuel has dropped sharply, hedging would likely see that benefit capped at 31%.

Airlines are also faced with the challenge of refunding sold but unused tickets as a result of numerous cancellations resulting from government-imposed restrictions on travel. The second-quarter liability could reach a massive US$35 billion.

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

Brazil, Canada, Colombia, Italy and the Netherlands have decided to allow airlines to issue vouchers in place of refunds.

“This (permitting voucher instead of refunds) will enable airlines to preserve the cash that they need to keep cargo operations running and preserve their ability to be fully operational when we can safely re-start the industry,” de Juniac said.

“These governments have taken an extraordinary measure in extraordinary circumstances. And it will provide a vital buffer period for airlines to keep operating. I cannot stress how important that is,” de Juniac added.

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