Fitch Ratings expects operating conditions to improve for the global airline sector in 2021, but only relative to the unprecedented downturn in 2020. 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, the ratings agency predicted.
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. 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.
“Successful development and distribution of effective coronavirus vaccines and/or treatments will be essential for air traffic to rebound toward pre-crisis levels,” Fitch said. 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. The vaccine news “potentially leaves room for a more robust return to air traffic in the 2H21,” Fitch said.
