Fitch: Outlook for North American airlines is stable

Eleanor Steed
By Eleanor Steed December 8, 2016 13:08

Fitch: Outlook for North American airlines is stable

The rating and sector outlooks for North American airlines are stable for 2017, revised down from Positive last year, says Fitch Ratings.

Although low fuel prices and years of consolidation continue to boost the industry’s financial results, Fitch expects persistent unit revenue weakness, pressured international markets and sizable shareholder-focused cash flows to temper the outlook.

“The North American airline industry is still solid by historical standards, but we will begin to see some stabilization or moderate deterioration in credit metrics over the next year,” says Joseph Rohlena, Director, U.S. Corporates.

Fitch expects demand for air travel will grow steadily, mirroring U.S. GDP growth, despite geopolitical uncertainty in the U.S. and UK.

One risk for rising unit costs is rising wages, which many airlines have recently or will soon factor into union contracts. When combined with the prospect of higher oil prices, this may result in some margin compression, bringing them below record levels seen in 2015 and 2016.

Fitch’s Stable ratings outlook reflects the expectation that the pace of North American airline upgrades will slow in 2017, with only select credits having room to move higher. Air Canada, JetBlue and Hawaiian Holdings are seeing positive momentum that may lead to upgrades. Delta Airlines, while also on a positive trajectory, has a large pension that remains a ratings overhang.

The full report, ‘2017 Outlook: North American Airlines – Credit Profiles Leveling Off,’ is available at www.fitchratings.com.

Eleanor Steed
By Eleanor Steed December 8, 2016 13:08