Airlines face having to burn through cash reserves while while making little to no new revenue owing to consumers converting vouchers for flights cancelled owing to coronavirus, Iata has warned.
After months of tough cost-saving measures, such as making redundancies, selling assets, trimming fleets and cutting routes, Iata says the sector’s decision to issue vouchers instead of refunds for cancellations could come back to bite carriers as they seek to resume operations having, in essence, merely deferred their liability to carry hundreds of thousands of passengers.
The warning comes despite general secretary Alexandre de Juniac insisting in April the practice would create "vital time to breathe" for the sector, and Iata insisting just last week the move was essential for staving off failures.
According to Iata’s latest "chart of the week", voucher exchanges accelerated significantly in June and July, skewing the typical proportion of flights paid for by fresh revenue.
"Starting mid-March, as airlines grounded their fleet globally and their new booking revenues plummeted, they preferred to provide vouchers to passengers rather than refunds," said Iata.
"This proved useful in slowing down their cash burn and helped prevent bankruptcies. However, airlines’ liability to transport these passengers was only deferred but did not disappear.
"A month after the easing of travel restrictions on intra-EU routes, we can already observe passengers have used a large number of vouchers to pay for their travel. This means airlines now incur the cost of transporting these passengers against no or limited new revenues.
"While the issuance of vouchers helped decelerate cash burn a few weeks ago, their use will now accelerate cash burn in the coming months."
Iata said it had also observed a "dramatic change" in passenger booking behaviour, with more than 40% of travellers booking up to three days in advance of travel in June versus just 18% last year.
"This makes it difficult for airlines to plan and optimise their schedules, crew and fleet," said Iata, added that with its data based only on its own billing and settlement scheme, the uptake on vouchers would likely be higher than is evident.