More airlines to go bankrupt in 2021

MANILA, Philippines — Fitch Ratings expects more airline bankruptcies happening next year, particularly among smaller and less well-capitalized carriers.

Fitch said nearly all airline ratings remain under pressure as traffic remains severely depressed.

“Airlines cut costs dramatically, but fixed costs will continue to sap cash until traffic trends back towards historical levels,” Fitch said.

“Modestly higher traffic and cost-cutting efforts will help stem cash burn compared with 2020. However, the combination of higher debt and prolonged weakness in operating profits will drive weak credit metrics for the sector at least over the next 18 to 24 months,” it said.

In Southeast Asia, Fitch said the pace of recovery would vary cross countries.

It said the trend in the Philippines, where further coronavirus spread remains a high risk, would be similar to Thailand, Malaysia and Indonesia, which are affected by weak international traffic volume.

Globally, however, Fitch expects the airline sector’s operating conditions to improve in 2021, but only relative to the unprecedented downturn this year.

It said spiking coronavirus cases in various regions and inconsistent travel restrictions would keep airline traffic low at least through the first part of next year, with limited improvement seen relative to levels in the third and fourth quarter.

“Recent positive news about vaccine development along with pent-up leisure demand may drive a more robust rebound in the second half of 2021,” it said.

Fitch said positive early developments on vaccines at least reduce risks toward a downside scenario, in which traffic would plateau at low levels through 2021, and potentially leaves room for a more robust return to air traffic in the second half.

“Successful development and distribution of effective coronavirus vaccines and/or treatments will be essential for air traffic to rebound toward pre-crisis levels. Positive early news on the Pfizer and Moderna vaccines has positive implications,” it said.