WestJet Airlines Ltd. Ratings Placed On CreditWatch Negative On Reduced Demand From COVID-19 Concerns

  • We expect WestJet Airlines Ltd.'s earnings and cash flow to fall significantly in 2020 primarily due to capacity cuts from temporary travel restrictions on many international routes and passenger concerns of contracting or spreading COVID-19.
  • As a result, on March 17, 2020, S&P Global Ratings placed all of its ratings on WestJet, including its 'B+' issuer credit rating on the company, on CreditWatch with negative implications.
  • We expect to resolve the CreditWatch as we determine the longevity and magnitude of the impact COVID-19 will have on WestJet's financial position this year and the company's prospects for recovery in 2021.
TORONTO (S&P Global Ratings) March 17, 2020--S&P Global Ratings today took the rating actions listed above. We expect earnings and cash flow to fall significantly in 2020 primarily due to route suspensions and lower demand for air travel from passenger concerns of contracting COVID-19. Starting on March 22, 2020, WestJet will suspend commercial international and transborder flights for 30 days in the wake of the spread of COVID-19. This follows yesterday's announcement by the Canadian Prime Minister that the country will temporarily deny entry to Canada to anyone who is not a Canadian citizen or permanent resident, or who is not a U.S. citizen. International and transborder routes represented about half of WestJet's capacity in 2019, while the other half is from domestic flights. We expect demand on domestic routes to also drop meaningfully this year (WestJet is currently operating at less than 60% of capacity on these routes) because people are generally avoiding air travel out of fear of contracting or spreading the coronavirus.
In our view, the drop in air travel demand and temporary travel restrictions being imposed around the world should result in a significant drop in earnings and cash flow this year. Somewhat mitigating the impact of weaker demand are our forecast for lower jet fuel prices and other cost-saving measures we believe the company is likely to take.
The CreditWatch with negative implications reflects our expectation for WestJet's adjusted EBITDA to be down at least 25% this year, contributing to credit measures that are weak for the rating, including adjusted debt-to-EBITDA above 5x. As a result, we are likely to downgrade the company within the next few weeks. We could also downgrade WestJet if we no longer consider its liquidity adequate.
We expect to resolve the CreditWatch as we determine the longevity and magnitude of the impact COVID-19 will have on WestJet's financial position this year and the company's prospects for recovery in 2021.
WestJet is the second-largest Canadian airline after Air Canada and the eighth-largest in North America based on available seat miles. It provides scheduled and charter air service to more than 100 destinations in Canada, the U.S., Central America, the Caribbean, and Europe. The company's fleet is composed of 180 aircraft, including 126 737s (37 of which are leased), 47 Q400s (two of which are leased), four 767s, and three 787 Dreamliner aircraft that are leased. WestJet also launched SWOOP last year, which is an ultra-low-cost carrier that currently operates nine aircraft serving 18 destinations.
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com