Airlines may post $39B net loss in April-June

KATHMANDU: The aviation industry is likely to register a net loss of $39 billion during April-June 2020, according to a report by the International Air Transport Association (IATA).

The report further said that revenue of the airlines may fall by 68 percent during the quarter, which is going through a tough phase amid the coronavirus crisis. The fall in demand would be the deepest in the second quarter, with a 71 percent drop.

Variable costs are expected to drop sharply by some 70 percent in the second quarter, largely in line with the reduction of an expected 65 percent cut in second-quarter capacity, said the IATA report. The price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31 percent 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 the future recovery,” the report said.

“These changes to revenues and costs result in an estimated net loss of $39 billion in the second quarter,” it added.

Regarding the unavoidable costs, the analysis showed that 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 for these is a colossal $35 billion, it said, adding that cash burn will be severe.

As per the report, airlines may burn around $61 billion of their cash balances in the second quarter.

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 $39 billion in the second quarter. The impact of that on cash burn will be amplified by a $35 billion liability for potential ticket refunds. Without relief, the industry’s cash position could deteriorate by $61 billion in the second quarter.”

(with inputs from Agencies)