Fitch Ratings has downgraded the Class A certificates of Air Canada's 2013-1 enhanced equipment trust certificate (EETC) issuance as a result of the deterioration in Boeing 777-300ER values amid the pandemic. The US agency downgraded the certificates to "BBB" from "A-" as values for the 777-300ERs that back the transaction have declined by roughly 18% year-over-year, according to recent appraisals. Fitch has affirmed the Class B certificates at "BBB-". It notes that the 777-300ER, with its low cost per available seat mile, holds "strategic importance" in Air Canada's high-volume leisure routes and will likely be a "key asset" as travel begins to return to normalised levels. Fitch has affirmed Air Canada's 2020-2, 2017-1 and 2015-1 EETC Class A certificates at "A-", "A", and "A", respectively. The transactions continue to pass its "A" level stress tests, reflecting "relatively strong" collateral value performance. Loan to values (LTV) for each of these transactions are nearly "unchanged" from Fitch's prior review, as modestly lower aircraft values were largely offset by principal amortisation. Collateral for the 2017-1 and 2015-1 transactions consists of the newest generation technology aircraft including 737 Max types and 787s, which have "held up well" through the pandemic. The 2020-2 transaction includes some older aircraft and 777s which have fared worse, but the transaction has a relatively rapid amortisation profile, Fitch observes. Fitch has also removed Air Canada's 2017-1 transaction from rating watch negative. Fitch has affirmed Air Canada's 2017-1 class AA certificates at "AA-" and has removed the negative outlook. The affirmation is supported by adequate LTV headroom in Fitch's 'AA' stress scenario. Fitch calculates the maximum stress scenario LTV in this transaction at 89%, an improvement of roughly four percentage points from its prior review. Lower LTVs for the transaction are driven by a reduced stress rate applied to the 737 MAX aircraft, which Fitch has reduced to 25% from 30%, subsequent to the ungrounding of the Max aircraft by the Canadian government. The removal of the rating watch is due to the ungrounding of the Max, which previously was a risk to the transaction's ratings.
Collateral in the transaction consists of 737 Max 8s and 787-9s, the values for which have been relatively firm over the past year compared to other popular aircraft types. Fitch views both aircraft types as being well positioned to hold their value as air traffic continues to rebound. Fitch has affirmed all of Air Canada's class B certificates.

Total domestic traffic remained below 2019 levels in March but was significantly improved from February, data from IATA shows. Overall domestic traffic across regions, as measured in revenue passenger-kilometres, was down by 32% in March 2021 versus March 2019, compared with February's 51% decline. "The positive momentum we saw in some key domestic markets in March is an indication of the strong recovery we are anticipating in international markets as travel restrictions are lifted," IATA’s director general Willie Walsh states. "People want and need to fly. And we can be optimistic that they will do so when restrictions are removed." IATA notes that all markets except Brazil and India showed improvement in domestic traffic compared to February 2021, with China being the key contributor. Brazil reported a 54% decline in March compared to March 2019, as authorities tightened restrictions amid rising Covid-19 cases. India's declined by 32% versus two years ago, while China reported a 2.6% decline. Japan and Australia, which in the Asia-Pacific region are key domestic markets, saw March domestic traffic decline by 58% and 46% versus two years ago, respectively. The USA posted a 44% decline over the same period. Meanwhile, international traffic remained in the doldrums, declining by 88% in March versus March 2019 due to travel restrictions and marginally improved from February's 89% decline, IATA says. Airlines in the Asia-Pacific region recorded the greatest decline in international traffic in March, down by 95% versus March 2019 as the region continued to suffer from the steepest traffic declines for a ninth consecutive month. Capacity, as measured in available seat-kilometres, was cut by 87% and the load factor fell about 49 percentage points to just under 32%. European carriers were close behind, with an 88% decline in versus March 2019, slightly improved from February's 89% decline. Capacity was cut by 80% and load factor fell by 35 percentage points to 49%. For Middle Eastern airlines, international traffic fell by nearly 82% in March compared to March 2019, versus an 83% decline in February. Capacity fell by 67% and load factor declined 32 percentage points to 41%. North American carriers saw international traffic fall nearly 81% compared to two years ago. Capacity was cut by nearly 63%, while load factor dropped 41 percentage points to 43%. The data also shows an 82% decline in international traffic for Latin American airlines, in March versus the same month two years ago, compared with February's 84% decline. Capacity was cut by 77% compared with March 2019 and load factor dipped 18 percentage points to 64%, making it the best performer across regions for a sixth straight month. In Africa, airlines’ international traffic fell by 74% while capacity contracted by 62% and load factor fell 22 percentage points to 49%. Globally, overall traffic fell by 67% in March versus March 2019, compared with February's 75% decline.

Hong Kong's government is considering shortening the mandatory on-arrival quarantine requirement from 21 days to seven days for those fully vaccinated, although the benefit to the city's struggling airlines may be limited. "While the efforts of the Hong Kong government to lower the mandatory on-arrival quarantine period for fully vaccinated travelers from 21 days to seven days will be welcomed by many airlines and travellers, there would not be a drastic increase in demand for air travel even with the shortened period," says Eric Tamang, a Hong Kong-based valuations analyst. "Quarantine adds extra cost and time for travellers, hindering them from travelling to and from another country."
Government adviser Ivan Hung Fan-ngai has proposed that travellers fully vaccinated against Covid-19 could, in addition to having their quarantine reduced to seven days when they arrive in Hong Kong, be allowed to serve their quarantine at home rather than in a hotel, according to a 5 May article in local newspaper The Standard. Currently, travellers arriving in Hong Kong must serve quarantine in hotels at their own expense for between 14 and 21 days. In addition, non-Hong Kong residents who have visited places other than mainland China, Macau, Taiwan, Australia, New Zealand or Singapore within 14 days of arrival will be denied entry to the city, according to a 12 April notice on Hong Kong International airport's website. Even if the government decides to implement a reduced quarantine for vaccinated travellers, the number of fully vaccinated people in Hong Kong is low. Only 7.6% of Hong Kong's population is fully vaccinated against Covid-19, according to government data published by The South China Morning Post. Vaccine hesitancy, rather than lack of supply, is one of the main reasons for the low vaccination rate. "Given the relatively low uptake of vaccination in Hong Kong and unstable daily Covid-19 cases abroad, the general population would still be reluctant to travel due to uncertainty and quarantine measures abroad, which can affect airline load factors and hinder airline revenues," Ascend by Cirium's Tamang notes. Local airlines Cathay Pacific, HK Express and Hong Kong Airlines were not immediately available for comment. Cathay Pacific has posted a 96% year-on-year decline in group traffic for March. It carried a total of 18,539 passengers, a 94% decline. Dennis Lau, a senior valuations analyst at Ascend by Cirium in Hong Kong, adds that the reduced quarantine would mainly be attractive to travellers like Hong Kong students returning from study overseas, or those visiting family, who plan to have a longer stay than the typical tourist or businessperson. "However, business travel and leisure travel are unlikely to see any notable increase, even with the shorter quarantine," he says. ne glimmer of hope for on-arrival-quarantine-free travel to Hong Kong is now flickering. The long-delayed Air Travel Bubble (ATB) between the city and Singapore is set to launch on 26 May, but a Singapore government official has said it is assessing any potential changes given a recent outbreak of Covid-19 in Singapore. The ATB has a strict suspension mechanism whereby flights must be paused for two weeks if the weekly average number of unlinked Covid-19 cases in either city rises above a certain level.