Wizz Air Could Recover Faster But IAG May Lag - Moody's

(Alliance News) - Moody's Investors Service on Thursday said the airline industry will "remain deeply constrained" until 2021, with the ratings agency slapping easyJet PLC and International Consolidated Airlines Group SA with a downgrade, though did spare Wizz Air Holdings PLC from the chop.

Wizz Air's outlook was sent lower to negative however, though the budget carrier clung onto its Baa3 long-term issuer rating.

Fellow budget carrier easyJet's issuer rating was lowered to Baa3 from Baa2, and British Airways-owner IAG's corporate family rating was lowered to Ba1 from Baa3. Both easyJet and IAG were also given a negative outlook.

The ratings agency explained it expects the "airline industry will remain deeply constrained in 2020 and 2021 and will not recover 2019 passenger volumes until 2023 at the earliest."

Moody's added that the airlines are likely to increase debt as a result of the pandemic and run the risk of being "unlikely to fully repair" their balance sheets in the next two to three years.

"The International Air Transport Association currently forecasts that 2020 global passenger numbers will be 48% down year-on-year, with 2021 volumes around 30% below 2019, and only recovering to 2019 levels by 2023," Moody's said.

The ratings agency added that IAG began to feel the bite from the pandemic as early as February, due to restrictions from flights to and from the US, China and Italy.

"As the outbreak spread the company reduced its capacity by 94% in April and May, and has announced that it could see capacity reductions of 50% for 2020," Moody's said.

"Moody's expects flight activity to resume over the third quarter and fourth quarter of 2020, but remaining severely depressed, with domestic flights recovering earlier and a slower return for international and long haul flights."

IAG also runs a larger risk due to its greater exposure to "business travel and premium leisure". Moody's noted that 67% of IAG's capacity is outside of Europe.

The pandemic has battered demand for air travel, with IAG in April warning that there could 12,000 job cuts at flag carrier British Airways as a result.

easyJet on Thursday warned 30% of roles could go in a cost-cutting bid.

"easyJet's liquidity is somewhat lower than similarly-rated airlines and any material deterioration in its position could put downward pressure on the rating. However, liquidity could be substantially boosted by raising further debt against aircraft, with around half of easyJet's fleet remaining unencumbered," the company said.

And on Wizz Air, spared from a downgrade, Moody's noted its "strong market position in Central & Eastern Europe". Moody's also hailed its "cost position, strong balance sheet and liquidity profile prior to the coronavirus outbreak".

"We expect Wizz Air to be able to ramp up its capacity more swiftly than large network carriers over the next few months as travel restrictions are being lifted by European governments. Its small size and geographic positioning should also give Wizz Air more flexibility to adjust its network to fit an uneven recovery in passenger traffic," Moody's added.

Wizz Air shares closed 2.1% lower at 3,250.00 pence each in London on Thursday. easyJet closed 4.4% higher at 740.00p while IAG ended the day down 0.9% at 246.40.

By Eric Cunha; ericcunha@alliancenews.com

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