A new report from the International Air Transport Association (IATA)—which represents some 290 airlines or 82 percent of the world’s total air traffic—forecasts that major airlines will burn through $61 billion of their cash reserves by the close of 2020’s second quarter.
IATA is urging global governments to slacken rules which require currently airlines to provide cash refunds to customers for canceled trips, which look to total $35 billion during this period.
The results of an impact assessment, based on a scenario in which severe today’s COVID-19-related travel restrictions lasted for three months, show the airlines’ overall revenue plummeting by 68 percent during the anticipated height of the coronavirus pandemic.
IATA is predicting the global aviation industry to post net losses of up to $39 billion in the second quarter and as much as $252 billion in overall revenue this year.
While the COVID-19 crisis continues to make travel almost impossible, airlines are making cuts where they can—canceling routes, grounding fleets and laying off employees. But, as IATA’s Director General and CEO, Alexandre de Juniac, said during a March 31 media briefing, “When 70 percent of your business vanishes overnight, there is no amount of cost-cutting that can adequately fill the gap.”
The IATA estimated that airlines typically had cash balances at the start of this year sufficient to support two months’ worth of operations. Based upon information from the CAPA Centre for Aviation, Bloomberg reported that most carriers will be bankrupted by May if they can’t secure support.
Several world governments have stepped up so far, providing financial aid or relief measures in answer to the airline industry’s pleas, including Australia, China, Colombia, New Zealand, Norway, Singapore and the U.S.
— IATA (@IATA) March 31, 2020
While consumers are expressing frustration with airlines’ reluctance to issue cash refunds for tickets, de Juniac argued that aviation needs to retain this capital in order to survive the current volatility. He’s in favor of governments allowing airlines to issue vouchers in lieu of refunds, as Canada, Colombia and the Netherlands have recently done.
This would serve as a vital buffer, said de Juniac, “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.”
For more information, visit iata.org.
Comments & Discussion
New United CEO Scott Kirby Comes Out Firing
United Airlines’ Scott Kirby, who took over as CEO last week in the wake of Oscar Munoz’s retirement, is wasting no time establishing his authority.
Kirby cut 13 high-level executives in a cash-saving move on Friday as the coronavirus pandemic has throttled the industry financially. A day earlier, he told an online investor conference that the airline absolutely would not declare bankruptcy, and that he thought flying was safe enough to not block the middle seats on planes from being sold.
Well, he did build a reputation as an open – some might say abrasive – executive while at American Airlines.
Kirby is eliminating 13 of United’s 67 officer positions, all effective on Oct. 1. That’s the day after the restrictions on firing employees runs out per the federal government’s rules for airlines accepting billions of dollars in stimulus package grants and loans.
“While there are glimmers of good news in our July schedule — we expect to be down about 75% versus 90% right now — travel demand is still a very long way from where it was at the end of last year and the financial impact on our business remains severe,” United said in a written statement as reported by CNBC.
The cuts are in response to the loss of nearly 90 percent of business for United and all airlines, as the demand for travel has dropped dramatically compared to last year and beyond.
But Kirby defiantly said during the investor conference a day before that he has no plans for the airline to go bankrupt.
“Zero percent, no chance,” Kirby said. “It’s worse for shareholders. It’s worse for creditors. It’s worse for employees. It’s worse for every constituent that we have.”
To that end, Kirby also said he won’t sacrifice potential sales by blocking middle seats, as some airlines have done. As the blog The Points Guy noted, Kirby said the airline’s cleaning process, air circulation and a requirement for passengers and crew to wear face masks make it a safe experience.
“Airplanes don’t have social distancing — we’re not going to be six feet apart,” he said. “But an airplane environment is incredibly safe.”
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