The analysis is based on the impact assessment IATA released last week, under a scenario in which severe travel restrictions last for three months. In this scenario, full-year demand falls by 38%, and full-year passenger revenues drop by $252 billion compared to 2019. The fall in demand would be the deepest in the second quarter with a 71% drop.
The impact will be driven by the following factors:
- Revenues are expected to fall by 68%.
- Variable costs are expected to drop by some 70% in the second quarter, largely in line with the reduction of an expected 65% cut in second-quarter capacity.
- Fixed and semi-fixed costs, with IATA expecting semi-sixed costs including crew costs to be reduced by a third.
These changes to revenue and costs result in an estimated net loss of $39 billion in the second quarter.
On top of unavoidable costs, airlines are faced with refunding sold but unused tickets as a result of massive cancellations resulting from government-imposed restrictions on travel. The second quarter liability here will be £35 billion with IATA estimating airlines could burn through $61 billion of their cash balances in the second quarter.
“Travel and tourism are essentially shut down in an extraordinary and unprecedented situation,” said Alexandre de Juniac, IATA’s Director General and CEO. “Airlines need working capital to sustain their businesses through the extreme volatility.”
Among countries providing specific or regulatory aid packages to the industry are Colombia, the United States, Singapore, Australia, China, New Zealand and Norway. Most recently, Brazil, Canada, Colombia and the Netherlands have relaxed regulations to allow airlines to offer passengers travel vouchers in place of refunds.
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