OPERATING conditions is expected to improve for the global airline sector in 2021 but only relative to the unprecedented downturn in 2020.
According to Fitch Ratings, a spike in COVID-19 cases in various regions – coupled with inconsistent travel restrictions – will keep airline traffic low at least through the first part of 2021 with limited improvement expected relative to levels in third quarter of 2020 (3Q 2020) and 4Q 2020.
“Airline ratings remain under severe pressure from the coronavirus downturn,” Fitch’s senior director Joe Rohlena pointed out in a 2021 global airlines report.
“(However), recent positive news about vaccine development along with pent-up leisure demand may drive a more robust rebound in the second half of 2021 (2H 2021).”
On the same note, Fitch expects more airline bankruptcies in 2021, particularly among smaller and less well-capitalised airlines.
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.
Specifically for the Southeast Asia market, Fitch foresees a varied recovery pace across countries.
The Vietnamese market should rebound quickly due to low incidences of coronavirus cases, with revenue passenger kilometres (RPK) at 55% of the 2019 level in 2020 and 90% in 2021.
“Complete reliance on international routes should severely hit Singapore Airlines (RPKs at 30% and 50% of 2019 in 2020 and 2021 respectively),” projected the Fitch report.
“The trend in Indonesia and the Philippines where further coronavirus spread remains a high risk should be similar to Thailand and Malaysia (RPKs at 35% and 60% respectively) which are affected by weak international traffic volume.”
While distribution of a vaccine sufficient to spur a more rapid rebound in travel will take time, Fitch believes positive early developments on vaccines will at least reduce risks toward a 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 2H 2021. – Dec 11, 2020
