The airline industry will be ravaged for years to come and the effects will be felt across the entire economy, a Moody's report says July 2020

The airline industry will be ravaged for years to come and the effects will be felt across the entire economy, a new Moody's report says

dslotnick@businessinsider.com (David Slotnick)

 

The airline industry will be ravaged for years to come and the effects will be felt across the entire economy, a new Moody's report says

 

• Commercial aviation will be ravaged by the COVID-19 pandemic for years to come, according to a new report from Moody's.
• Every stakeholder, from airlines and airports, to plane lessors, plane manufacturers, and parts suppliers, will be squeezed, with effects rippling across the entire global economy.
• In a best-case scenario, Moody's sees a recovery by the end of 2023, but said that it's looking more and more likely that it will take longer.

The commercial aviation industry will continue to be devastated by the coronavirus pandemic for years to come, according to a new report from Moody's. The ripple effects will likely be felt across the entire global economy.

According to the report, the effect on stakeholders throughout the aviation business — from airport operators and aircraft leasing companies, to plane-makers and their suppliers — will shake up the industry well into 2022, and likely beyond.

"And the outsourcing by airlines of many services, along with the significance of their employment rolls and consumption of refined petroleum in normal economic times, supports economic activity across many sectors of the global economy," the analysts, led by Moody's senior vice president Jonathan Root, wrote in the report.

According to the report, the main factor in the recovery will be sustained passenger demand. As that improves, airlines and airports will start to recover, followed by aircraft lessors as demand continues to climb and airlines need more aircraft to carry passengers. Aircraft manufacturers will follow, while component suppliers will be the last direct stakeholder to recover, but Moody's says that won't happen before 2023, at the soonest.

The forecast is built on the assumption that passenger demand will recover to 2019 levels — the benchmark for a recovery — by the end of 2023, contingent on the production and distribution of effective COVID-19 vaccines or treatments.

However, Moody's warned that it is also modeling the possibility of a slower recovery — and that such a scenario is looking more possible in recent weeks.

"Recent experience of increasing rates of infection concurrent with loosening social distancing and quarantine protocols indicates that passenger demand will likely align more with our slower recovery case," the report said, "as social distancing and quarantine protocols are more likely to be maintained and/or revert to more restrictive mandates as infection rates rise again."

The forecast aligns with the timeframe that analysts and industry experts began to acknowledge by late-April, with most citing a three-to-five-year recovery timeframe for the airline industry. The expansion on that forecast demonstrates that despite optimism over a brief, modest recovery in May and June, the aviation industry's outlook remains bleak.

The good news for the industry is that Moody's — along with other analysts — expect it to fully recover eventually, as long as it can make it through the rough years ahead.

"Notwithstanding the harsh market environment we envision for the next several years, when passenger demand ultimately returns to 2019 levels, we believe the industry will then need almost as many aircraft as were in operation in 2019," the report said.

Even so, not every airline or industry stakeholder is likely to survive.

"With an effective coronavirus vaccine likely not available before well into 2021 – and likely longer to cover potential mutations of the virus and to ensure adequate dosage supply for the masses – additional government support will be required for the airline industry if employment levels are to be maintained near already reduced levels," the report said, "and potentially to stave off additional airline restructurings and insolvency proceedings (whether preemptive, or otherwise)."

Video: Delta trims flights amid resurgent virus (Reuters)