Moody’s Investors Service has revised its outlook for the global airlines industry to positive from negative. The rating agency is confident that industry fundamentals will “materially improve over the next 12-18 months, notwithstanding the current record high daily infection rate in India; travel restrictions in countries with large amounts of traffic to and from India; and ongoing lockdowns in other countries”.
“While the continuing pandemic means there is a risk of further disruption to air travel in various countries at various times, we expect increasing vaccinations will lower border restrictions and increase demand for air travel over the next 12 to 18 months,” said Jonathan Root, a Moody’s Senior Vice President.
“Leisure traffic will lead the charge to the boarding gates, while corporate trips and international long-haul will follow, initially at a slower pace. The restoration of the ability to travel will relieve the tremendous pent up demand to fly to visit friends and relatives and for vacations. With offices in many countries opening by fall 2021, this will facilitate the beginning of the corporate travel recovery,” added Root.
The strong recovery in US domestic travel demand that began in March 2021 highlights the benefits of the combination of vaccinations and a large geographic footprint for the return of domestic travel demand, says Moody’s, which adds that as conditions in other markets improve and barriers to travel come down, the current experience in the US market is expected to be repeated globally, over different time frames.
For this summer, the domestic capacity operated by each of the eight US airlines that Moody’s rates will reach at least 80% of the capacity they operated in 2019. Domestic schedules of some US low-cost operators will exceed 100% of 2019 levels. Moody’s expects that international operations of US airlines will remain “significantly curtailed through the summer, with green shoots starting in the fall, after European borders open this summer and infection rates in Latin America decline”. Moody’s states that a fulsome restart of trans-Pacific travel will require the end of lockdowns in Japan and removal of border restrictions across the region.
Meanwhile, Canadian airlines are still suffering some of the largest declines of carriers across the globe. High infection rates in some European countries and the more limited availability of vaccines, resulting in continued travel restrictions, have so far prevented a surge in demand in Europe similar to that seen in the US since late February, says the rating agency. However, increased vaccinations for residents of European countries could lead to border openings as early as July, which would stimulate ticket sales for European summer beach holidays. In terms of domestic air travel, China, the US and Australia are leading the industry’s recovery.
The rating agency expects the industry to sustain operating losses and negative operating margins for all of 2021, although to a lesser degree than in 2020. On a more negative note, Moody’s warned that a lack of efficacy of vaccines against potential future variants of the coronavirus would be the likely driver of falling demand through 2023.