UK Arrival Quarantine Delays Air Travel Demand Recovery


Wednesday, May 13, 2020 / 04:38 PM / By Fitch Ratings / Header Image Credit: Business Traveller 


The UK requirements to impose a 14-day quarantine on international arrivals, including air travellers, will delay recovery in air travel demand and test airlines' financial resilience, Fitch Ratings says. Risks for airlines will increase should these measures stay in place for a prolonged period.

Proshare Nigeria Pvt. Ltd.


Cross-border travel restrictions will be a key consideration for our future rating-case reviews. We currently assume no flights until end-June, followed by a 15% capacity utilisation of the entire fleet from July, to gradually increase to more than 60% by December 2020.


The UK government COVID-19 recovery strategy, published on 11 May 2020, will require all international arrivals, bar those on a short list of exemptions, to self-isolate in their accommodation for fourteen days upon entering the UK. We expect this regime to begin at the end of May. Exemptions include journeys within the Common Travel Area (the UK, the Republic of Ireland, the Isle of Man, Guernsey and Jersey) and passengers arriving from France. It is unclear when and how often this measure will be reviewed.


New arrival requirements will discourage travellers from flying to the UK, especially for short business trips, and will adversely affect carriers such as British Airways (BA), Ryanair, Wizz Air and EasyJet. Wizz Air resumed a fraction of its flights from London Luton airport prior to the announcement. Ryanair and BA had anticipated resuming 40%-50% of their flights from July due to increased demand during the summer holiday season.


BA, Ryanair and Wizz Air have strong liquidity positions, which will enable them to finance their activities if the flight recovery is delayed for several more months. Fitch estimates that the existing cash balances and available revolving credit facilities (RCFs) will help these companies to avoid a liquidity crunch in 2020, subject to their ability to manage working capital efficiently. However, a substantial cash burn rate during the aircraft grounding period will further impair the airlines' ability to deleverage.


Proshare Nigeria Pvt. Ltd.


The quarantine may also suppress advance bookings and complicate working capital management, which is already under pressure due to refund requirements for cancelled flights. Under European law, passengers are entitled to a cash refund within seven days. However, passengers are mostly offered non-cash options such as flight vouchers. We expect the sector to come under regulatory pressure to fast-track cash refunds despite logistical issues in the processing of such refunds.

Proshare Nigeria Pvt. Ltd.


We expect the speed of recovery of European airlines to vary depending on their relative exposure to short- or medium-haul traffic, which will recover faster than long-haul traffic, as well as their ability to adjust pricing. The companies' flexibility in pricing will be partly driven by their starting liquidity positions and cost structures, and with that in mind we believe Ryanair and Wizz Air will likely emerge stronger in the medium term compared to other carriers.


Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

Related News

  1. European Hotel Occupancy Rates Will Not Recover Until 2023
  2. Coronavirus Causing Dramatic Differences in State Unemployment
  3. SSA Equities Market Performance: Defying the odds
  4. SSA: COVID-19 Budgets - Interest Payments vs Healthcare Spending
  5. China Consumer Retailers Face Cash Flow Pressure
  6. Sell in May and Go Away? - Revisiting Market History and COVID-19
  7. China's Expensive Bet on Africa Has Failed
  8. Emerging Market Covenant Quality Scores Improve, But Risk of Cash Leakage Rises
  9. Viral Setback to Global Thinking - FBNQuest
  10. Week-To-Date Update: Coronavirus across Africa
  11. Unparalleled Global Recession Underway - Fitch
  12. COVID-19 and the SSA Region: Entering a Period of Negative Growth
  13. Coronavirus And The Coming Financial Revolution

Proshare Nigeria Pvt. Ltd.
Related News