Airlines could post a combined net loss of $39 billion in the second quarter of 2020, estimates the International Air Transport Association (IATA), hinting that without external help, most of them may go bankrupt.
On March 24, 2020, IATA anticipated a $252 billion drop in passenger revenue and a 38% drop in demand over the full year. Now the association believes that airlines could post a combined net loss of $39 billion for the second quarter of 2020 alone.
In addition to the decrease in revenue, a major part of that loss would come from ticket refunds. The containment measures imposed by governments could force airlines to pay back as much as $35 billion of sold but unused tickets. “Without relief, the industry’s cash position could deteriorate by $61 billion in the second quarter,” said IATA’s Director General and CEO, Alexandre de Juniac.
IATA called for relief measures from the governments. It praised the actions of several countries, including Canada, Colombia, and the Netherlands, which have authorized airlines to offer vouchers instead of refunds to their passengers.
However, the situation could be complicated in Europe. The European Commission rejected the plea from carriers asking to relax the requirement to refund cancellations within a week, and to allow vouchers to be delivered instead.
“The Commission appears to considerably underestimate the crisis afflicting airlines in Europe,” said Rafael Schvartzman, IATA’s Regional Vice President for Europe. “This is not a short-term issue — air connectivity will not be back to normal for many months. And for some airlines, things will never be the same again,” he warns.
Unprecedented crisis
In January 2020, a month after the coronavirus Covid-19 was localized in Wuhan, China, air traffic was still recording a 2.4% growth. Today, no region of the world is spared.
The future is uncertain for many airlines, which have been trying to reduce costs by any means. Lufthansa (LHAB) (LHA) and Singapore Airlines (SIA1) (SINGY) have grounded most of their fleet. Air France put 80% of its staff on temporary leave and could face nationalization by the French state. Emirates is to receive government support, and Qatar Airways could soon follow the same route.
The crisis has rekindled existing tensions. easyJet, which immobilized its entire fleet of more than 300 Airbus A319s and A320s, is currently torn between two visions. Its founder, Stelios Haji-loannou, wants to cancel an order for 107 Airbus aircraft, while the company’s board of directors counts on the planes to win new market shares once the epidemic passes. The former threatened to remove a non-executive director every seven weeks if the board does not agree with his strategy.