Airlines will have to fork out $35 billion in ticket refunds in Q2 alone, the International Air Transport Association (IATA) has warned.
IATA has estimated that airlines could eat up $61 billion of their cash reserves during Q2 when the drop in demand for air travel is likely to be at its deepest at 71%.
It thinks that refunds and sold but unused tickets resulting from international travel bans will prove to be one of the largest costs for cash-strapped carriers.
IATA says airlines could post a quarterly net loss of $39 billion for the second quarter of the year, which ends on 30 June 2020.
The projection, which assumes that travel restrictions will remain for three months, is that full-year demand falls by 38% and full-year passenger revenues drop by $252 billion compared to 2019.
“Airlines cannot cut costs fast enough to stay ahead of the impact of this crisis, said Alexandre de Juniac, IATA’s director general and CEO.
“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.”
Some governments have offered financial support packages to airlines. The UAE, Colombia, the United States, Singapore, Australia, China, New Zealand and Norway have all offered financial aid to certain airlines.
Most recently, Brazil, Canada, Columbia, and the Netherlands have relaxed regulations to allow airlines to offer passengers travel vouchers in place of refunds.
De Juniac said: “Travel and tourism is essentially shut down in an extraordinary and unprecedented situation. Airlines need working capital to sustain their businesses through the extreme volatility.
“Canada, Colombia, and the Netherlands are giving a major boost to the sector’s stability by enabling airlines to offer vouchers in place of cash refunds.
“This is a vital time buffer so that the sector can continue to function. In turn, that will help preserve the sector’s ability to deliver the cargo shipments that are vital today and the long-term connectivity that travelers and economies will depend on in the recovery phase.”
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