Moody’s gloomy outlook for airlines

RATINGS agency Moody’s has warned that the global aviation sector would not see significant recovery before 2023 as air passenger demand will remain severely depressed beyond the coronavirus (Covid-19) pandemic.

In a report on Friday, Moody’s said the aviation sector would undergo substantial permanent structural changes, unless a vaccine was developed or effective treatment becomes available.

Moody’s said that health concerns, changes in corporate travel policies, restrictions on international arrivals, and lower discretionary spending would constrain air passenger demand into 2022.

“The consequences of the coronavirus are likely to reshape the global airline industry. In the first instance, this will be because of a potential reduction in the amount of weaker airlines,” Moody’s said.

“We expect the sector to bifurcate between larger, more efficient airlines with strong liquidity, and those that have less efficient business models, but survive because their strategic importance prompted their governments to provide support.”

The International Air Transport Association (IATA) has projected that global revenue passenger kilometres for this year would be 50% below those of 2019.

IATA forecasts that passenger air travel will not fully recover to 2019’s level until 2023, which is in line with recent commentary from many airlines.

Moody’s said the deep repercussions of Covid-19 would cut across related sectors, particularly commercial aerospace manufacturers and suppliers, airports, travel distributors and airline service companies.

The Covid-19 lockdowns have devastated the global aviation industry this year, with the outlook for the airline sector worsening on the duration of the virus outbreak.

Airlines have responded to the crisis rapidly by cutting nonessential costs and cash outflows, grounding fleet, deferring aircraft purchases and furloughing staff.

In South Africa, the aviation industry is set to resume with Flysafair domestic flights from June 15, albeit for business travel only at a higher price than normal.

Comair, which was forced to file for business rescue by Covid-19, said it was unlikely to start operating again before November as the airline requires a substantial cash injection.

The operator of British Airways in South Africa and low-cost airline kulula.com said its profits for the year to the end of June would fall more than 100%.

National carrier SAA business rescue practitioners have proposed that the government provide a

R21 billion bailout to help repay debt and resume operations.

Moody’s said airlines with strong credit profiles or that have received government support, or both, had significantly improved their liquidity in the last two months.

However, Moody’s said increased liquidity and extended periods of cash outflows would result in substantially higher debt burdens.