Loading

Fitch: Improved passenger yields & business travel support positive 2011 outlook for US Airlines

Direct News Source

09-Dec-2010 The credit quality of U.S. airlines should continue to improve in 2011, according to Fitch Ratings' Outlook report issued today.

Continued positive trends in passenger yields and unit revenue linked to the steady recovery of high-fare business travel demand are the critical drivers of credit quality improvement for the sector next year.

"Modest strengthening of industry operating fundamentals and steady progress toward debt reduction and balance sheet deleveraging will continue to support ratings improvement next year."

"Our Rating Outlook for U.S. airlines is Positive as we anticipate that most carriers will generate strong free cash flow and reduce debt in 2011," said Bill Warlick, Senior Director at Fitch. "Modest strengthening of industry operating fundamentals and steady progress toward debt reduction and balance sheet deleveraging will continue to support ratings improvement next year."

As U.S. carriers look to unwind the lingering effects of historically weak returns, insufficient cash flow generation and constrained liquidity, deployment of cash toward debt repayment will be essential if the ratings momentum witnessed in 2010 is to continue for another year.

Fitch's mid-single digit industry unit revenue growth forecast for 2011 hinges on a continuation of the favorable fare trends that helped drive a rapid recovery in passenger revenue per available seat mile (RASM) performance in 2010. Increasing confidence with regard to revenue growth will be held in check by growing concerns over global energy demand and expected volatility in crude oil and jet fuel prices.

U.S. airlines' success in addressing major liquidity concerns through capital raising transactions and improved cash flow in 2010 has removed a primary source of ratings pressure, providing flexibility in meeting future cash obligations. Still, airlines remain uniquely vulnerable to devastating external demand and fuel price shocks that have the power to rapidly undermine cash flow and constrain access to the capital markets.

The full report '2011 Outlook: U.S. Airline Balance Sheet Repair to Continue' is available on the Fitch Ratings' web site 'www.fitchratings.com