Global ratings group, Moody’s reckons Qantas and Air New Zealand are among the best-placed airlines to start the long-haul to recovery from the impact of the COVID-19 pandemic lockdowns and social distancing rules that have all but halted international and domestic air travel.
In the study, released late last week, Moody’s said it expects countries to re-open domestic travel markets first in the September quarter of this year with a slower re-opening of international markets.
“This will mainly benefit North America, China, and Australia. Currently, world-wide passenger volumes are around 80%-90% below prior-year levels,” Moody’s pointed out.
Moody’s placed 22 airline ratings under review for downgrade in March.” We downgraded 13 of these companies and concluded the rating reviews for 19 airlines by the week of 1 June,” the ratings group noted.
“Rating downgrades have been more prevalent and severe for lower-rated credits, as expected, reflecting their elevated risk profiles and hence greater challenges in raising liquidity and repairing balance sheets.
“We confirmed six airlines’ ratings in May – Southwest, Qantas, Delta, Wizz, United, and Allegiant. These companies retain more solid liquidity and hold stronger prospects for recovering their balance sheets compared to the others in the airline rated universe,“ Moody’s noted. Qantas’ rating was confirmed at Baa2 negative (Moody’s says it has 700 days of ‘cash burn’) and Air New Zealand has the same rating after it was bailed out by the NZ government.
In what was a major examination of the outlook for international travel and airlines Moody’s said that the “recovery prospects for Qantas and Air New Zealand are supported by an early ramp-up in domestic travel.
“Their home countries, Australia and New Zealand have benefitted from early border closures and compulsory 14-day quarantine periods for international travellers, and in some cases, interstate travellers too.
This has enabled them to reduce active cases to under 500 in Australia and just one case in New Zealand. With flying being the only viable means of transport between geographically distant cities, the domestic markets in these countries are ramping up capacity from July.
Locally, Air New Zealand had started flying to more and more domestic routes and Qantas says it will do the same in July.
Moody’s said “We have downgraded 10 airlines by multiple notches since February 2020, almost entirely among issuers previously rated Ba3 or lower. Higher liquidity risks, uncertainties over the availability or terms of state support, and actual or heightened risk of pre-emptive restructurings were the main drivers of these multi-notch downgrades. Amongst these issuers, two companies have defaulted: LATAM filed for US Chapter 11 bankruptcy protection on 26 May and Virgin Australia entered voluntary administration on 21 April and missed a coupon payment on 15 May.
“IATA forecasts that passenger air travel will not fully recover to 2019’s level until 2023, which is in line with recent commentary from many airlines.
“The IATA forecast assumes that 2021 volumes will lag 2019 by around 25%-30%, which is likely to be driven by the continued presence of the coronavirus, potential renewed outbreaks, and lockdowns, travel restrictions and consumers’ health concerns, as well as the macroeconomic effects of depressed GDP and higher unemployment levels,” Moody’s said.
Investors have twigged to this – Qantas shares closed at $4.63 on June 5, up 36% in the past month (but still down 35% year to date). Air NZ shares have performed in a similar fashion, rising 33% in the past month, but remain down 45% year to date.
