The recovery of the US airline sector from the COVID-19 downturn is increasingly likely to be a “multi-year affair”, says JPMorgan aviation analyst Jamie Baker.
“We are growing increasingly convinced that the industry’s recovery to 2019 levels of output will be a multi-year affair. Our current base case assumes 2021 EBITDAR will recover to only ~75% of 2019 levels,” Baker said in an analyst note.
According to Baker, liquidity remains to be in focus as equities continue to trade on news surrounding firm’s balance sheet resilience as the final impact on fundamentals from COVID-19 remains uncertain.
Given the degree of uncertainty over the ongoing impact of COVID-19 Baker said that the upcoming first half earnings calls would provide crucial insight and he expected carriers’ management to be questioned closely on reducing headcount after the government enforced restrictions on layoffs disappear in October.
JPM Morgan was more positive about the outlook for East Asia, with the firm’s China, Hong Kong and Singapore analyst, Cavin Wong noting that given the recent stabilization in the number of new infection cases in Mainland China, domestic air travel in the Middle Kingdom has seen a mild sequential rebound.
Wong attributed this to the Civil Aviation Administration of China (CAAC) shifting its focus towards restarting the nation’s domestic air travel market.
“The number of daily flights increased 20.5% in March (as guided by CAAC), with this equating to roughly 42% of pre-COVID-19 levels of daily flights,” said Wong. “While certain restrictions on the number of daily domestic flights remain in place, we expect the gradual recovery in China’s domestic air travel market to gather pace in the coming weeks, which could serve as a barometer for other countries.”
However the outlook for international travel was less positive. Wong cited Chinese government measures over cross border travel as the country seeks to avoid a second wave of imported COVID-19 cases as a drag on an uptick in international demand.