S&P Global has lowered its ratings for EasyJet, Ryanair, Lufthansa, IAG, British Airways, Air Baltic, Turkish Airlines and SAS, and placed them on alert for further downgrades as the coronavirus hurts their liquidity positions.

“The pandemic materially threatens the credit quality of European airlines and poses serious challenges for the global airline industry as a whole,” states the ratings agency. It warns that “lower revenues and cash flows will result in significantly weaker credit metrics in 2020 than our previous expectations”.

Given the collapsing passenger demand and the significant travel restrictions being enacted in Europe and worldwide, S&P believes earnings could fall by 50-70% depending on carriers’ abilities to slash costs.

The agency expects revenue to decline 30% on the back of softer average ticket prices as carriers lower their yields in order to fill seats. Capacity will only be reduced by half as much as passenger demand falls, S&P suggests, amid airlines’ efforts to maintain viable flight schedules.

A gradual recovery in passenger demand is forecast for the third quarter and near-normal trading conditions for the fourth, but it will likely be hindered by a global recession.

“The ultimate impact of the coronavirus outbreak will depend on its duration and severity, and the type and rigorousness of measures airlines and government bodies take to mitigate it,” says S&P. Given this uncertainty, its forecasts “are susceptible to possible revisions in the near term”.

Although the overall outlook for airlines is sharply negative, their cash positions will benefit from weaker fuel costs, the deferral of capital expenditure on new aircraft, and the suspension of dividends and share buybacks.