Taiwan Ratings Corp (中華信評) on Thursday raised its outlook on China Airlines Ltd (CAL, 中華航空) from “negative” to “stable” on expectations that the nation’s largest air cargo operator would benefit from elevated cargo demand and strong air freight rates next year, it said.
The local arm of S&P Global Ratings forecast demand for air cargo to remain at a comparatively high level next year due to strong consumer demand in the US and Europe, growing trade volume and ongoing disruption of sea shipping, it said in a report.
Because of Taiwan’s favorable geographic location in Asia, CAL is likely to receive high orders over the next 12 months, it said.
Photo courtesy of China Airlines
A quick recovery in air cargo capacity is not likely, as air travel would still be subdued, limiting the cargo capacity offered by passenger flights; therefore, CAL’s cargo load factor is expected to stay above pre-COVID-19 pandemic levels, and air freights rates are forecast to continue to stay at strong levels this year, the company said.
Air travel could slowly pick up next year, given that some Asian countries have reopened international travel, but improvement of passenger traffic for CAL is expected to be limited in the first half of next year in light of ongoing border controls and quarantine requirements for international tourists, Taiwan Ratings said.
However, many governments plan to ease their restrictions after their vaccination rates reach sufficient levels, laying ground for rebounding passenger flights, the company said.
Taiwan Ratings holds a mixed outlook for CAL for 2023. The ratings agency is upbeat for CAL’s passenger business, but holds conservative expectations for air cargo business.
It forecasts air cargo demand to soften in 2023 and 2024, as disruption of sea shipping should ease, and demand from developed countries to restock could also fall after their inventory-to-sales ratios return to adequate levels from the current historic lows; therefore, cargo rates should retreat, casting pressure on air cargo yields, it said.
However, passenger traffic would likely accelerate its recovery in 2023 on the back of resumed demand for leisure travel, and the rebound in passenger flights should help CAL mitigate the impact of a possible decline in cargo revenue and support the airline’s cash flow generation, it said.
Intra-Asia flights were the biggest revenue contributor to CAL before the pandemic, constituting about 70 percent of the airline’s passenger revenue, it added.
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