(Reuters) – Global airline capacity may fall up to 35% this year, hamper credit quality of many airlines and push the weaker ones to default, credit ratings agency Moody’s said on Friday, as a drop in demand due to the coronavirus leads to cancelled flights.
For some airlines, the capacity cuts could be as drastic as 40% to 75% or more in the second quarter and it could worsen their credit quality, if the health crisis runs beyond June 2020, Moody’s said.
“While weaker airlines may be pushed to default, we do not expect even the strongest companies to emerge unscathed,” Martin Hallmark, Moody’s senior vice president, said in a statement.
The global travel industry has been upended as tourists stay indoors to stop spread of the highly contagious virus. Some estimates https://reut.rs/3dhMZwz have pegged revenue losses for the business travel sector at about $820 billion.
Moody’s, which revised its outlook for the airline industry to “negative” earlier this month, said fuel hedging will be an additional burden for some airlines as oil prices too have crashed.
Lower oil prices have resulted in overhedged jet fuel contracts that were agreed in anticipation of rising prices and air travel demand.
A shattered global airline industry is now seeking tens of billions dollars from state bail-outs to absorb the shock from the coronavirus pandemic.
(Reporting by Ankit Ajmera in Bengaluru; Editing by Arun Koyyur)