Global airlines face tough year: Moody’s

21 December, 2020 12:00 AM printer

NEW YORK: Moody’s Investors Service sees a negative outlook for global airlines in 2021, with operating losses expected to continue rising throughout the next two years due to the impact of the Covid-19 pandemic on air travel demand.

The credit rating agency does not expect passenger demand to return significantly until the Covid-19 vaccine is widely available and travellers are more confident about boarding a plane, Moody’s said, report agencies.

“We have a negative outlook on the airlines, we expect operating losses to run through 2021 into 2022,” Jonathan Root, Moody’s airlines analyst, said on a podcast.

The global aviation industry is among the hardest hit by the global health crisis, with global airline lobby the International Air Transport Association (Iata) forecasting combined losses of $157 billion this year and next.

“We’re looking for a stronger recovery in demand in the back half of 2021,” Mr Root said.

Moody’s expects total passenger demand in 2021 to stand at 40 to 50 per cent of pre-crisis levels, he said. Demand will accelerate in the second half of the year as vaccines become more readily available.

Airlines have suffered from a collapse in global air travel that has increased their daily cash burn and forced governments to disburse billions of dollars in financial aid to their national carriers.

“For airlines, sufficient coverage for daily cash burn is going to be the linchpin for the industry outlasting the coronavirus,” Mr Root said.

Of the 22 global airlines that Moody’s rates, it projects a range of 900 days of cash cover for some operators like Texas-based Southwest Airlines to as low as 100 days for some carriers in Europe or Latin America, he said.

Airlines will have to continue relying on the playbook of seeking liquidity from banks, capital markets, governments and cost reductions but will have to face the challenge of pledging most of their assets for debt, he said.

The challenge for airlines is to minimise cash burn but while they can manage labour costs and capacity, they cannot control ticket revenues in terms of how many people take a trip or cancel or demand refunds, he said.

“Government policies about adopting testing regimes instead of quarantines, and later on once vaccines are available, those are going to be the leverage to really help the airlines,” he said.

Corporate travel will take the longest to recover to pre-pandemic levels, Moody’s said.

“For corporate travel to return to pre-pandemic levels, a vaccine needs to be widely available so that businesses are comfortable sending their employees back on the road again,” Moody’s lodgings industry analyst Peter Trombetta said.