I have this same issue with iOS 14.3 on iPhone 12 Max and Watch 7.2 on Series 6 (latest versions as-of 1/1/2021). It was working fine, then I recently upgraded both and got the same behavior others are describing. If Bluetooth is enabled on the watch, my IPhone will not play audio through my Airpods. They show connected in Bluetooth, but do not play audio. Any audio app hangs and either reverts to phone audio or doesn’t play at all. Switching Bluetooth off on the watch, then connecting AirPods to phone resolves the issue temporarily. This is especially annoying as the main time I use my AirPods is when exercising. Apple! Please fix this issue!!!!