REPORT: Asia-Pacific aviation on a ‘recovery runway’

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Singapore SA2024Passenger air traffic in most of Asia-Pacific should return to pre-pandemic levels over the next 12-18 months. At the same time, industrywide capacity constraints, due to supply-chain issues, should support load factors and ticket fares.

“Demand-supply dynamics are favoring aviation-related sectors in Asia-Pacific,” said S&P Global Ratings credit analyst Isabel Goh. That’s according to a report titled, “Asia-Pacific Aviation Is On A Recovery Runway.”

As of August 2023, the region’s revenue passenger kilometres, or RPK, reached 93% of pre-pandemic levels. This is more than 35% above levels in December 2022, and in S&P’s  view is largely attributable to the relaxation of Chinese border restrictions since the beginning of the year.

Forecasts are based on data from 17 listed, but publicly unrated airlines, that make up 75% of market capitalisation for airlines in Asia-Pacific. S&P also derives data from the 12 airports and three aircraft leasing companies it rates in the region.

The most recent rating actions on Indian airports have been positive. This follows several negative rating actions during the COVID-19 pandemic, where lower traffic and tariffs collectively weakened cash flow profiles for rated entities. S&P also recently affirmed ratings on airports in Australia and New Zealand.

Ratings on the aircraft lessors have remained relatively stable over the past year as lease collections from airline customers continue to improve. “Lessons from the pandemic will sharpen the risk management and resilience of the sector,” said S&P Global Ratings credit analyst Cheng Jia Ong.

Nevertheless, airports and lessors depend on airlines, a sector exposed to high cash-flow cyclicality and capital-intensity. Airlines’ pricing power could gradually diminish as reopening benefits recede.

Meanwhile, with fundamentals improving, the sector will likely refocus on investing in future growth and sustainability. S&P anticipate that over the next 12-18 months, catch-up spending that had been deferred during the pandemic will weigh on the leverage of some entities in each sector. This could undo some of the varying leverage recoveries in airlines, airports, and lessors.


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