Ratings agency Moody’s has estimated that full capacity for the global airline industry would be as much as 35% down on 2019, due to the impact of Covid 19, against pre-crisis consensus opinion the sector would see a 4% increase in travel this year.
Last week Moody’s downgraded the majority of airlines it rates, with just Air New Zealand holding its rating as stable. Citing uncertainty over the potential development of the Covid 19 pandemic on the airline sector Moody’s said it had assessed a range of outcomes and that it expected the fall in passenger traffic to continue into the second quarter.
“We believe capacity will be cut by 40% to 60% or more for the second quarter of 2020, and in some instances, more than 75% compared with the second quarter of 2019. On a full-year basis, we expect global industry capacity to fall 25% to 35%, assuming the spread of the virus slows by the end of June and, subsequently, passenger demand returns,” said Moody’s.
The ratings agency said that liquidity was the key issue for airlines, and that access to capital markets would be linked to individual carrier credit quality. Moody’s said that while large airlines have adequate liquidity to manage disruption through June and a more modest downturn in the third quarter. However, Moody’s warned that government intervention would be required for weaker firms and a more extensive grounding of fleets.
“More modest-sized and/or less liquid airlines will be more exposed, and there is potential for some airlines to collapse within a short period without additional support
from shareholders and/or central governments,” said Moody’s.
“Many airlines will require financial support from federal and state governments, particularly if more aggressive measures to contain the spread of the virus are implemented. Indeed, globally, various regulatory relief measures are either in process or under consideration to cushion the ensuing economic consequences and an abrupt industry downturn that is now well underway. “
Moody’s said that the decline in fuel price would benefit US carriers, which typically went unhedged, however their European peers would carry the additional burden of higher priced fuel hedges to pay on flights which would now not take place.