JAKARTA (TheInsiderStories) – Global airport traffic levels may not fully recover to pre-pandemic levels until fourth quarter (4Q) of 2024, says Fitch Ratings in a new report. The agency expects the traffic level recovery speeds to vary regionally due to differences in traffic profiles – including whether flights are for business or leisure – as well as due to differing government support schemes and travel restrictions.
“We can expect to see air travel change significantly over the next few years as lockdowns keep traffic levels down. Domestic and leisure travel will probably recover much earlier than international and business travel,” says Jeffrey Lack, director at Fitch Ratings.
Fitch’ expectations for full traffic recovery ranges from 2Q 2021 to 4Q 2024, although the timing and shape of the recovery are uncertain. Airport performance is vulnerable to significant worsening of the pandemic – even though future lockdowns may be less stringent, given their high economic impact. Airport performance is linked to airlines’ strength, and many of these are going bankrupt or facing liquidity issues.
The rater has developed various scenarios to assess the potential impact of the pandemic on rated airports. Its considered issuers’ ability and intention to reduce operating costs and tap into balance-sheet flexibility, with capital expenditure growth plans deferred and dividends reduced.
Fitch has reported, the scale of the current coronavirus outbreak would have a significant impact on credit ratings. However, under such a scenario, its expect global corporates exposed to travel and tourism to be most at risk of being affected.
On the whole, Asia-Pacific sovereigns have substantial financial buffers and room for further policy easing to offset any short-term hit to economic activity from the outbreak, but their resilience to any health crisis would ultimately depend on its scale.
The new virus was first identified in Wuhan China, in December 2019. It has not reached pandemic status but has sickened millions of individuals, some fatally, in China and internationally. The global airlines, gaming, lodging and leisure sectors are vulnerable to pandemics that influence consumer behavior. Operational disruptions caused by idiosyncratic events – including disease outbreaks, acts of terrorism and even weather – are a perennial risk faced by these sectors.
Large-scale, unpredictable events can cause immediate and severe disruptions in global travel demand that affect revenue but are typically transitory. Financial implications ultimately depend on the severity and duration of the situation. If the virus outbreak prolonged, said Fitch will dampening consumer sentiment, effects could become more widespread.
The agency reported, service sector activity, particularly in fields associated with tourism, would be most vulnerable, which could leave economies such as Thailand, Vietnam and Singapore exposed, along with Hong Kong and Macao, both of which are already on Negative Outlook. Upward ratings momentum for Asia-Pacific sovereigns with significant tourism receipts, such as Thailand and Vietnam, where Fitch has a positive outlook on both, could also be affected depending on the severity of the outbreak.
Downside risks for Asian sovereigns would be mitigated by large financial buffers and easing of other macroeconomic risks. The signing of the US – China Phase One trade deal and a pause in tariffs has reduced policy uncertainty, and signs of improved activity among manufacturers and exporters in Asia are increasing.
Nevertheless, for sovereigns where medium-term fiscal consolidation is a priority, such as Malaysia and Sri Lanka, there could be less room to relax fiscal policy in response to any downturn. The willingness of some authorities to use fiscal measures may be constrained by their adherence to self-imposed fiscal rules, such as in Indonesia and Vietnam, although they may have room for monetary easing in such a scenario.
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