[ET Net News Agency, 9 March 2020] Moody's Investors Service has revised the outlook
for the global passenger airlines industry to negative from stable.
"The negative outlook reflects the increasing risk to demand for passenger air travel as
the coronavirus expands globally. The uncertainty and the speed of the outbreak will
pressure airlines' operating profits and cash generation for at least the first half of
2020. We expect further capacity reductions as the number of infected people and affected
countries grow," stated Jonathan Root, Moody's Senior Vice-President.
Moody's estimates an operating margin of less than 5% for 2020 for the aggregate of the
airlines it rates, down from its pre-coronavirus expectation of about 9%. Major unknowns -
uncertainty about the virus's active period, its eventual geographic spread and the scale
of infections in a given country or region - complicate efforts to project operational and
financial impact for the industry.
Even so, Moody's now anticipates a sharp decline in passenger demand through at least
the second quarter of 2020, with significant uncertainty about how recovery would take
shape until the still expanding infectious period subsides.
While there is a significant level of variable cost in the industry, it will not be
sufficient to offset the revenue decline and mitigate pressure on operating margins. Fuel
hedging strategies will determine to what extent airlines can benefit from lower prices of
Brent, which have fallen fairly meaningfully already and will likely remain pressured as
the virus spreads.
Moody's base case assumption - based in part on the recovery following the 2003 Severe
Acute Respiratory Syndrome (SARS) pandemic - is that the virus will be mostly a first-half
2020 problem and that traffic should be close to pre-coronavirus levels by the end of
2020. However, if the outbreak persists beyond the first half and/or the eventual recovery
in the second half of the year is weaker than expected, the financial effect and credit
risk for the airline sector would be greater. (KL)