The International Air Transport Association (IATA) said in its new analysis that airlines may burn through US$61 billion in cash reserves in the second quarter of the year while posting a net loss of US$39 billion for the same period.

This analysis is based on the IATA's earlier Mar-2020 COVID-19 impact assessment, under a scenario in which severe travel restrictions last for three months. In this scenario, full-year demand falls by 38% year-on-year and full-year passenger revenues drop by US$252 billion.

The fall in demand would be the deepest second quarter, with a 71% drop.

 IATA said the impact will be severe, driven by the following factors:

• Revenues are expected to fall by 68%. This is less than the expected 71% fall in demand due to the continuation of cargo operations, albeit at reduced levels of activity;
  
  
• Variable costs are expected to drop sharply (around 70% in 2Q2020) largely in line with the reduction of an expected 65% cut in 2Q2020 capacity. The price of jet fuel has also fallen sharply, although we estimate that fuel hedging will limit the benefit to a 31% decline;
  
  
• Fixed and semi-fixed costs amount to nearly half an airline's cost. IATA expects 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 future recovery.
  
  

On top of unavoidable costs, IATA noted that airlines are faced with refunding sold but unused tickets as a result of massive cancellations resulting from government-imposed restrictions on travel to cost $35 billion.

It said cash burn will be severe and estimate airlines could be burning through $61 billion of their cash balances in the second quarter.

“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 ... without relief, the industry’s cash position could deteriorate by $61 billion in the second quarter,” said Alexandre de Juniac, IATA’s director general and CEO.

Several governments are responding positively to the industry’s need for relief measures. Among countries providing specific financial or regulatory aid packages to the industry are Colombia, the United States, Singapore, Australia, China, New Zealand and Norway.