S&P Global Ratings: Global air traffic is slowing amid rising COVID-19 cases

Global air traffic and related aviation revenues are facing renewed risks stemming from the recent spike in COVID-19 cases in many regions. The increase has triggered a new round of lockdowns and travel restrictions, particularly in Europe and, to a lesser extent, in the U.S. S&P Global Ratings updated its recovery expectations for the sector in a report titled "As COVID-19 Cases Increase, Global Air Traffic Recovery Slows," published Thursday, Nov. 12, 2020. 

"There's considerable uncertainty regarding the overall outlook for air travel; however, we now believe that 2020 traffic, as measured by revenue passenger kilometers, and revenues are likely to be 65%-80% lower than in 2019. Our previous estimates were for 60%-70% lower," said S&P Global Ratings credit analyst Philip Baggaley. 

"We see a weak recovery in 2021, with traffic and revenues still 40%-60% lower than in 2019, compared with our previous estimate of 30%-40% lower. Our estimates incorporate the recent consensus among health experts that a vaccine may be widely available by the middle of 2021. We also lowered our expectations for 2022, to 20%-30% below 2019 levels compared with 15%-20%, previously, but continue to expect air traffic to match 2019 volumes by 2024."

We expect actual performance will vary significantly among regions, airlines, and airports. Within these recovery ranges, we believe Asia is likely to recover faster, Europe the slowest, and North America and Latin America somewhat faster than Europe. Similarly, airports' aeronautical revenues could suffer as much as air traffic. It's unlikely airports will be able to raise unit charges over the next year and non-aeronautical revenues, such as retail and property, provide little diversification benefit.

We based our updated expectations on recent air traffic trends, which are weaker than previously expected; forward-looking guidance from airlines, aircraft lessors, and airports; and information and analysis provided by other sources such as industry trade groups International Air Transport Association and Airports Council International.

S&P Global Ratings believes there remains a high degree of uncertainty about the evolution of the coronavirus pandemic. Reports that at least one experimental vaccine is highly effective and might gain initial approval by the end of the year are promising, but this is merely the first step toward a return to social and economic normality; equally critical is the widespread availability of effective immunization, which could come by the middle of next year. We use this assumption in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.