oGovernments across Europe are finding it more difficult to control the COVID-19 pandemic, as numerous new virus variants have emerged which appear more transmissible and have led to concerns over vaccine efficacy. This has prompted a new round of lockdowns and tighter travel restrictions.

oEuropean air passenger confidence and demand have understandably faltered, depressing the rebound in European air traffic and likely delaying a more meaningful recovery to after the crucial summer season. This will fuel further cash burn and debt accumulation for European airlines and airports and could cause some downgrades.

oIf the EU can accelerate vaccine production and rollouts, we think it could achieve widespread immunization by the end of the third quarter, enabling air passenger traffic to recover more meaningfully later in 2021. Consequently, we assume 2021 European air passenger traffic will recover only to 30%-50% of 2019 levels.

LONDON (S&P Global Ratings) --S&P Global Ratings said today that new travel restrictions, implemented to curb the spread of fast-spreading COVID-19 variants, have dealt a further blow to Europe's aviation industry. More-severe lockdown measures eroded consumer confidence, putting our previous air traffic assumptions of a stronger summer recovery in Europe at risk (see "Europe's 2021 Air Passenger Traffic Likely To Stall At 30%-50% Of 2019 Level").

Although vaccine rollouts offer an encouraging path back to more normal levels of social and economic activity, implementation is proving more complex than expected. Most EU countries got off to a slow start and the new variants have led to concerns over vaccine efficacy. Under our base-case scenario, we now expect the recovery of European air traffic to be weaker, and slower, in 2021 than we previously forecast.

Although we see evidence of a huge amount of pent up demand for travel, a more meaningful recovery could be delayed to the fourth quarter. We currently forecast that European air passenger traffic and revenue in 2021 will be only 30%-50% of 2019 levels.

This report does not constitute a rating action.

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