NEW DELHI: Fitch Ratings said that it expects operating conditions to relatively improve for the global airline sector in 2021, when it also expects more airlines bankruptcies.
“Spiking coronavirus cases in various regions and inconsistent travel restrictions will keep airline traffic low at least through the first part of 2021, with limited improvement expected relative to levels in 3Q20 and 4Q20. Recent positive news about vaccine development along with pent-up leisure demand may drive a more robust rebound in the 2H21 (second half of 2021 calendar year),” the report said.
Nearly all airline ratings remain under pressure as traffic remains severely depressed. Fitch expects more airline bankruptcies in 2021, particularly among smaller and less well-capitalized airlines, statement read.
Pandemic impact to travel and tourism
The Coronavirus pandemic has impacted travel and tourism industry the most with airlines reporting worst-ever grounding of planes and revenue losses running into billions of dollars during 2020.
“Combination of higher debt and prolonged weakness in operating profits will drive weak credit metrics for the sector at least over the next 18-24 months.”
Higher debt and prolonged weakness
Fitch adds that modestly higher traffic and cost-cutting efforts will help stem cash burn compared with 2020. “However, the combination of higher debt and prolonged weakness in operating profits will drive weak credit metrics for the sector at least over the next 18-24 months,” it said.
Successful development and distribution of effective coronavirus vaccines and/or treatments will be essential for air traffic to rebound toward pre-crisis levels.
The US and UK have started vaccination programmes but completing the vaccination process is likely to take longer, at least till the middle of next year. It is set to take longer in developing countries, including India that is yet to start the vaccination programme.
Positive implications of vaccines
“Positive early news on the Pfizer and Moderna vaccines has positive implications. While distribution of a vaccine sufficient to spur a more rapid rebound in travel will take time, Fitch believes positive early developments on vaccines at least reduces risks toward Fitch’s downside scenario, in which traffic would plateau at low levels through 2021, and potentially leaves room for a more robust return to air traffic in the 2H21 (second half of 2021),” it said.
