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Airlines facing rapid cash burn amid Covid-19, says Iata
Published on: Thursday, April 02, 2020
By: Bernama
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Photo for illustration only. (Bernama)
Kuala Lumpur: 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.

Under this analysis by the International Air Transport Association (IATA), full-year demand would fall by 38 per cent and full-year passenger revenues drop by US$252 billion (RM1.1 trillion) compared to 2019.

The association, which represents about 290 airlines accounting for over 80 per cent of global air traffic, said the fall in demand would be deepest in the April-June period with a 71 per cent slump.

In a statement, IATA Director General and Chief Executive Officer Alexandre de Juniac said on top of unavoidable costs, airlines were faced with refunding sold but unused tickets following massive cancellations due to government-imposed restrictions on travel.

“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 Q2.

“The impact of that on cash burn will be amplified by a US$35 billion (RM152 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.

De Juniac said the impact from three-month travel restrictions would be severe, as airlines’ revenues were expected to fall by 68 per cent and this was less than the expected 71 per cent fall in demand due to the continuation of cargo operations, albeit at reduced levels of activity.

“The variable costs are expected to drop sharply, by some 70 per cent in Q2, largely in line with the reduction of an expected 65 per cent cut in Q2 capacity.

“The price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31 per cent decline,” he said.

He noted that the fixed and semi-fixed costs would amount to nearly half of 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,” he added. – Bernama


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