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:
- we should have greater investor certainty on where net debt and cash burn goes to as we enter 2Q;
- we expect material COVID-19 testing, a vaccine roll-out and the establishment of travel corridors, enabling the remobilisation of aviation; and
- 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.