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S&P sees larger drop in air traffic, says airline ratings to stay under pressure

Global air passenger traffic will decline more than previously estimated in 2020 as the coronavirus pandemic continues to ravage travel demand, raising pressure on the credit quality of airline companies, S&P Global Ratings said in a new report.

The rating agency now expects global air traffic to sink by 60% to 70% year over year in 2020, steeper than the decline of 50% to 55% projected in May. Air passenger traffic is forecast to tumble 30% to 40% in 2021 compared with 2019, a revision from the prior estimate of a 25% to 30% drop.

"The more negative global traffic outlook increases pressure on all airlines' credit quality, and ratings are likely to remain under pressure until a vaccine or effective treatment is widely available or until airlines find a more widely accepted way to operate under a 'new normal,'" S&P Global Ratings said.

Most airlines rated by S&P Global Ratings have been hit with multiple-notch downgrades since the start of the global pandemic, leaving Ryanair Holdings PLC, Southwest Airlines Co. and easyJet PLC as the remaining investment-grade airline companies. Nearly all rated airlines are also on negative outlook or CreditWatch negative.

S&P Global Ratings said global air traffic faces a more gradual recovery path to pre-pandemic levels by 2024, with domestic travel rebounding at a faster pace than international travel due to more severe border restrictions imposed by some countries.

"The weakening global macroeconomic outlook will also impact both consumer and business spending power on all but essential travel," the rating agency said.

On revenues, S&P Global Ratings expects airline passenger yields to be weaker than pre-pandemic levels due to fewer business travelers and ticket price discounts implemented by airlines to attract passengers.

"Cost reductions, fleet right-sizing, and liquidity preservation will be critical measures to partly counterbalance the depressed demand for air travel," S&P Global Ratings said.