Scope Ratings cautioned (05-Mar-2020) that only European airlines with "strong shareholder backing and full access to capital markets" are likely to survive the coronavirus outbreak, as the spread of the public health emergency threatens more carriers in Europe and other regions. According to the credit ratings agency:
- Coronavirus has led to a dramatic slump in demand for air travel and disrupted air cargo services worldwide;
- The coronavirus outbreak is likely to result in accelerating industry consolidation;
- The full impact on airline profitability is difficult to assess given the uncertainty over whether the epidemic in several countries will become a global pandemic;
- Airline revenues are under intense pressure, leading to them take countermeasures such as asking employees to take unpaid leave, freezing new hiring, reducing schedules and curbing non-urgent spending;
- The credit outlook for the "fragmented" European aviation was already negative, independent of the impact of coronavirus, with ample spare capacity, downward pressure on ticket prices from fierce competition, rising wages and other costs, in addition to previous signs of slowing traffic as economic growth slows. The continuing spread of the coronavirus in Europe worsens the situation for the industry;
- One area where governments might be willing to come to the aid of the industry is in postponing tax increases and relaxing regulations;
- Conserving cash is key. As revenues fall, airlines will rely on their liquidity reserves and look at ways to raise additional capital via existing credit facilities or private means of financing while reducing expenditure;
- A decline in fuel costs will benefit some carriers that survive into 2021, though those airlines with active hedging policies which locked in higher prices will miss out on the full benefit. [more - original PR]