U.S. airlines are strong enough financially to weather at least a temporary drop in demand due to travel restrictions resulting from the coronavirus outbreak, according to Fitch Ratings.
The credit rating agency said in a report that “North American carriers should be in a stronger position than airlines in other regions to withstand implications from coronavirus,” noting that they “have gone through significant consolidation, restructured through multiple bankruptcies and experienced a change in operational focus toward profitability.”
Fitch warned that in the event of a sharp and sustained drop in demand, “Financial distress is likely among smaller regional carriers or those already under pressure.”
But, it added, “widespread bankruptcies among rated carriers would not be anticipated.”
Amid the decline in demand and the U.S. government’s European travel ban, major U.S. carriers have substantially reduced flight schedules in recent days. Delta Air Lines announced on Friday it will ground 300 aircraft — about one-third its fleet.
“All this is hitting badly, but we have never had an airline industry that has been this financially sound,” Mike Boyd, president of aviation consultancy Boyd Group International, told FlightGlobal. “Cash is available to every airline. They can weather this.”
American Airlines, Hawaiian Airlines, and Spirit Airlines are among the U.S. carriers facing the greatest risk from the virus risk, Fitch said, citing Hawaiian’s limited “geographic diversification” and American’s and Spirit’s relatively high debt levels.
But Boyd believes leisure travel-focused carriers like Spirit, Frontier and Allegiant Air may fare better as vacation travelers keep flying. “It may be the Allegiants and Frontiers are going to get hit less than others,” he said. “What we don’t know is what segments are getting hit the worse.”
Fitch also noted that a temporary drop in demand “will be partly offset by lower fuel prices. However, relief could be deferred to 2021 due to high fuel hedging positions.”
air travel, airlines, coronavirus, Fitch Ratings, Oil Prices