Global demand for travel and tourism will take several years to recover to pre-pandemic levels, despite growing evidence that effective coronavirus vaccines may be available by YE 2020 or early 2021, says Fitch Ratings. Credit implications of this sluggish demand are negative and span the corporate, public finance and sovereign sectors.
Many issuers tied to leisure/corporate travel or the airline, lodging and cruise industries were downgraded and the Rating Outlooks on most of our coverage portfolio is Negative.
Pressure on revenue and profitability will be particularly acute over the near term due to the resurgence in infections and the return of restrictions globally on traveller mobility domestically and internationally. However, liquidity is generally adequate, given cost reductions and cash raised throughout the pandemic.
Positive vaccine news is providing another opportunity for struggling issuers that depend on the travel industry to boost liquidity via the issuance of debt or equity as investor sentiment improves. Carnival, one of the world’s largest cruise lines, upsized an unsecured bond issuance last week, after issuing secured debt and equity earlier this year.
Still, we assume the revenue recovery trajectory back to 2019 baseline levels, which was a particularly strong period, will take up to four years, recovering by roughly 2024 for travel services, cruise, lodging, timeshare, airline, airport and port issuers deriving substantial revenue from travel. The cruise subsector could be among the slowest to recover, due in large part to the close quarters of travellers and health-related risks associated with mobile assets.
Demand for leisure travel will likely recover faster than demand for corporate travel. However, downside risk exists to Fitch’s travel recovery assumptions due to uncertainty regarding medium-term impacts on consumer behaviour, despite the positive vaccine news.