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Airline industry: Four years of pain, says report

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: May 29, 2020

Global air passenger numbers will drop as much as 55% this year, and won’t recover until 2024, according to a report

The aviation industry’s recovery from the coronavirus outbreak will be long and slow, according to S&P Global Ratings, which warned of more rating downgrades for airports over the next few months.

Some countries are gradually allowing flights to operate following lockdowns and restrictions on movement, but volumes remain low, said the report released on Thursday. Airports are struggling for business as demand for services such as dining and duty-free shopping evaporated.

Analysts at S&P Global Ratings see the demand recovery in air traffic depending on three factors. These include the willingness to fly among people, lifting of restriction by governments, and the economic fallout from the pandemic.

“Air travel will eventually return when current health and safety concerns have been meaningfully addressed by the industry and consumer confidence rebounds, supported by steady historical growth rates in air traffic of 4%-5% per year,” said the report.

It added: “A more widespread adoption of remote working and virtual meetings could have a lingering impact on business travel, which has been the more lucrative passenger segment for the airlines.”

S&P has lowered credit ratings of 11 airports since the pandemic. It expects slow recovery, capacity restructuring, and higher counterparty risks from airline companies to dent the financial strength of airports.

The S&P report said: “Airports will face increased exposure to volume risk and pressure on their aeronautical revenues, which generally represent over 50% of total revenues.” It added: “Retail revenues, the share of which have risen in recent years to 45%-50% of most airports’ revenue mix, will likely be even more heavily hit than aeronautical revenues.”

Airline stocks have seen a major sell-off this year. The top four US airline companies United Airlines, Delta Airlines, American Airlines, and Southwest Airlines are respectively down 67.2%, 55.8%, 61.6%, and 39.5% this year.

Warren Buffett held stakes in the top four US airline companies but sold them in April at a massive loss. However, retail investors were net buyers in airline stocks last month.

If you’re interested in raising finance to see you through this tough period, see our list of leading loan providers. There is also a list of loan providers for people with bad credit

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.

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