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S&P raises its European air passenger traffic forecasts

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Ahead of the summer season, S&P Global Ratings has raised its European air passenger traffic forecasts, anticipating that travel demand will continue to resist economic pressures.

In a new report, the ratings agency anticipates that European air passenger traffic should return to pre-pandemic levels in 2024, up from 85%-95% of 2019 levels in 2023.

Airlines’ strong recovery – and travel bookings that show no sign of slowing – underpin S&P’s recent upgrades of Ryanair Holdings PLC, easyJet PLC, International Consolidated Airlines Group S.A., British Airways PLC and Deutsche Lufthansa AG.

That is despite a European economic backdrop marked by persistently high inflation, interest rate rises, and pressure on disposable incomes.

The upgrades and mostly stable outlooks also reflect the airlines’ strong recovery, following a high number of negative rating actions during the COVID-19 pandemic (when all S&P’s European airline ratings were downgraded between one and seven notches).

S&P expects the strongest rated European carriers, and those more highly exposed to domestic and short-haul flights for leisure purposes, to fare well this year, particularly if operational issues experienced in 2022 can be avoided during the peak summer season.

However, airports are not similarly expected to benefit. S&P maintains a negative outlook on several airports’ ratings, anchored by a slower recovery of credit metrics.

According to the report, international travel will continue to lag domestic travel’s near-complete recovery, while on average, airlines are still deploying lower capacities with downsized fleets post-pandemic.

Robust demand, particularly for short-haul leisure trips, and tight capacity on European networks will continue to characterise the market.  The result is likely to be still high ticket prices over 2023, which should serve to continue to offset inflationary pressures on airlines’ cost-bases.

Discretionary spending on travel is supported by Europe’s low unemployment levels, accumulated savings, and pent-up demand following COVID-19 (particularly for high-end travellers).

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