Thankfully, it’s goodbye to 2020...but dark clouds set to persist into 1H21

Forecasting 2021 is like looking into the witches’ cauldron in Macbeth, but our key assumption is that a COVID-19 testing regime for aviation (aided by vaccination) remobilises the aviation industry. That, coupled with restructuring and liquidity, should lead to a further European aviation recovery in 2H21.

Investors will look to airlines for alpha in 2021, but need to be selective

We  believe  that  investors,  having  been  cautious  towards  the  sector  for  most  of  the  year, will look to airlines for alpha next year, since:

  1. we should have greater investor certainty  on  where  net  debt  and  cash  burn  goes  to  as  we  enter  2Q; 
  2. we  expect  material  COVID-19  testing,  a  vaccine  roll-out  and  the  establishment  of  travel  corridors,  enabling the remobilisation of aviation; and
  3. we still see upside potential for selected names under our coverage.

UBS Evidence Lab: We take a very conservative view on traffic recovery

We  now  forecast  2021  traffic  to  recover  to  c58%  of  2019  levels  (previously  nearer  70%).  We  model  traffic  on  a  quarterly  basis  to  show  what  our  base-case  recovery  scenario looks like. Recovery is predicated on a material reduction in travel restrictions .We have right-sized next year’s forecasts for most of the airlines under our coverage,  and  believe  our  estimates  are  conservative.  We  make  extensive  use  of  UBS  Evidence  Lab  data  to  examine  travel  restrictions,  customer  demand (survey and apps), pricing trends, and customer and employee reviews.

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