DUBLIN (S&P Global Ratings) --Pandemic-related travel restrictions, remote working, and train-capacity constraints due to social distancing will prevent rail travel recovering to pre-pandemic levels before 2023 at the earliest in some European countries, according to a report published today by S&P Global Ratings titled "European Rail Operators Are On A Slow Train To Recovery."

Over the lockdown months between March and May 2020, passenger traffic declined by more than 90% in many European countries, including Italy, France, and the U.K., and has only recovered partly since the travel restrictions were eased. International rail travel has been hit hardest and volumes remain low, while domestic rail travel volumes remain subdued and volatile.

"We have updated our recovery scenario to a 45%-60% decline in passenger traffic in 2020, down from our previous forecast of up to a 35% decline," said S&P Global Ratings credit analyst Tania Tsoneva. "We see only a slow recovery to 2019 levels, in many countries taking until 2023 at the earliest. We expect the recovery to differ from country to country because travel patterns vary by region and type of service, Ms. Tsoneva added.

Although we assume that the recovery will be gradual, it might not occur in a linear fashion, but could ebb and flow. In the near term, we forecast that passenger numbers will remain as subdued in the upcoming winter months as in August and September. Passenger numbers could then remain below pre-pandemic levels in 2021 and 2022 considering capacity shortages due to social distancing; potential changes in commuter behavior; a slow return of customer confidence in public transport; and the uncertain macroeconomic backdrop and rising unemployment rates.

Downside risk to our forecast could result from further lockdowns affecting general mobility, and more stringent requirements to self-isolate after crossing borders to countries with high infection rates. At the same time, travel could rebound more quickly if a vaccine or effective treatment becomes widely available, which we assume will happen around mid-2021.

Weaker passenger numbers put pressure on European rail operators' underlying (stand-alone) credit metrics and could result in negative rating actions without extraordinary government support. Even moderate revenue shortfalls can lead to a significant worsening in financial credit ratios. This is because European rail operators have relatively high operating leverage compared to other transport infrastructure issuers, and are either not able or not allowed to easily scale down services to respond to falling demand. The rating impact will depend heavily on the extent of governments' support measures.

This report does not constitute a rating action.

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