Air travel demand to reach 50% of pre-pandemic level by 2021: Moody’s

By Rahul Vaimal, Associate Editor
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The US-based credit rating provider Moody’s Investors Service expects a 40-50 percent recovery of passenger demand in the aviation industry to pre-pandemic level by 2021 and a steady increase in travelers by the second half of next year as vaccines become more available.

However in 2020, airlines have suffered from a collapse in global air travel, Moody’s airline analyst Jonathan Root says that “we’re looking for a stronger recovery in demand in the back half of 2021.”

The credit rating agency does not see a chance for a significant recovery of passenger demand until the COVID-19 vaccine is widely available. In 2021, the global airlines will face difficulties as the operating losses are expected to continue rising throughout the next two years due to the impact of the pandemic on air travel demand.

“We have a negative outlook on the airlines, we expect operating losses to run through 2021 into 2022,” Mr. Root, said on a podcast.

The aviation sector is among the most suffered by the pandemic crisis and the global airline lobby the International Air Transport Association (IATA) estimates a combined loss of $157 billion in 2020 and 2021.

The fall in global air travel has increased the daily cash burn of the aviation industry and Mr. Root says that “for airlines, sufficient coverage for daily cash burn is going to be the linchpin for the industry outlasting the coronavirus.”

Moody’s has rated 22 global airlines, out of which it estimates a range of 900 days of cash cover for some operators like Texas-based Southwest Airlines to as low as 100 days for some carriers in Europe or Latin America.

The major challenge airlines have to face will be in reducing their cash burn but while they can manage labor costs and capacity, they cannot control ticket revenues in terms of how many people take a trip or cancel or demand refunds.

Airlines will have to continue seeking liquidity from banks, capital markets, governments and cost reductions to navigate the crisis period.

“Government policies about adopting testing regimes instead of quarantines, and later on once vaccines are available, those are going to be the leverage to really help the airlines,” Mr. Root added.

As per the credit rating agency’s expectation the corporate travel will take the longest to reach pre-pandemic levels. “A vaccine needs to be widely available so that businesses are comfortable sending their employees back on the road again,” Moody’s lodgings industry analyst Peter Trombetta said.

The fall in the demand for corporate travel will hit airport revenues harder as business travelers are more likely to spend on high-yielding products at terminals, Moody’s airports’ analyst Earl Heffintrayer said.