articles Ratings /ratings/en/research/articles/190709-when-the-cycle-turns-u-s-airport-balance-sheets-and-exposures-increase-with-traffic-11020207 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Request a Demo

You're one step closer to unlocking our suite of comprehensive and robust tools.

Fill out the form so we can connect you to the right person.

If your company has a current subscription with S&P Global Market Intelligence, you can register as a new user for access to the platform(s) covered by your license at Market Intelligence platform or S&P Capital IQ.

  • First Name*
  • Last Name*
  • Business Email *
  • Phone *
  • Company Name *
  • City *
  • We generated a verification code for you

  • Enter verification Code here*

* Required

Thank you for your interest in S&P Global Market Intelligence! We noticed you've identified yourself as a student. Through existing partnerships with academic institutions around the globe, it's likely you already have access to our resources. Please contact your professors, library, or administrative staff to receive your student login.

At this time we are unable to offer free trials or product demonstrations directly to students. If you discover that our solutions are not available to you, we encourage you to advocate at your university for a best-in-class learning experience that will help you long after you've completed your degree. We apologize for any inconvenience this may cause.

In This List
COMMENTS

When The Cycle Turns: U.S. Airport Balance Sheets--And Exposures--Increase With Traffic


When The Cycle Turns: U.S. Airport Balance Sheets--And Exposures--Increase With Traffic

Aside from America's roadway network, U.S. airports have been at the forefront of a national conversation related to aging infrastructure, congestion, and delays that inhibit growth and global competitiveness. These are on display every day to 2.7 million travelers on 44,000 flights across the U.S. aviation system. Nearly 45% of all Americans flew a commercial airline in 2018, and with more than 21 million passports issued in 2018, 42% of U.S. citizens have one today compared with just 15% in 1997. Except for JetBlue Airways Corp. and Spirit Airlines Inc., capacity on all U.S. carriers measured by seats is up from 2018, and observers expect a record 257 million people to fly this summer.

But U.S. airport infrastructure is showing its age. And its shortcomings are painfully obvious as passenger levels push well past design capacity anticipated under near- and long-term forecasts showing steady growth. On top of the relatively minor impact associated with the grounding of the Boeing 737 MAX aircraft (this accounted for less than 5% of daily flights), a tight labor market is adding to the airlines' operational challenges and contributing to staffing shortfalls at the Federal Aviation Administration (FAA) and Transportation Security Administration.

In response to rising air travel demand fueled by financially healthy airlines and a growing economy, airport operators have responded with ambitious, multi-year capital programs, overwhelmingly financing them with debt. So far, S&P Global Ratings has found that the sector has shown credit stability overall, and has even improved in the past few years. (For a complete list of ratings in the sector, see "U.S. And Canada Airport Ratings: Current List," published July 9, 2019, on RatingsDirect.)

However, as the country enters--some might say endures--a renaissance in airport construction, key questions lie ahead. How will airport operators handle the growing leverage? How will airport credit quality weather the next downturn? How does airline industry weakness translate to the airport sector, and are past economic cycles and shocks a good measure of what can go wrong? Overall, we believe that those airports that can successfully prepare for and navigate the next downturn when it arrives will be more likely to preserve their creditworthiness.

What Goes Up …

By all measures, U.S. and global travel is firing on all engines, spurred by a growing economy and low fuel prices that have translated into low airfares and the expansion of discount airlines. Since 2002, U.S. domestic traffic--generating 77% of U.S. aviation volume--continues to rise, with growth averaging 2.2% increasing to an all-time high of 778 million enplaned passengers. This is more than 15% above the pre-Great Recession peak (see chart 1). Since 2002, U.S. domestic traffic has had only two years of decline, following the Great Recession at 4.0% and 5.2% in 2008 and 2009, respectively. Similarly, international traffic at U.S. airports has grown since 2002 at 4.3% annually, with only one meaningful decline of 5.3% in 2009. Total U.S. passenger levels surpassed 1 billion in 2018 and that year's 233 million international enplaned passengers also set a record.

Chart 1

image

Where U.S. passenger traffic levels go next depends on economic growth, fuel prices, and airline industry dynamics--and there's always the possibility of unforeseen shocks. Tensions and military conflicts can drive up fuel prices; over the long term, reducing the aviation industry's contribution to global greenhouse gas emissions might increase regulatory pressures or result in higher fares, suppressing or reducing demand. The 2019 FAA forecast calls for U.S. carrier passenger growth over the next 20 years to average 1.9% per year, reaching 1.6 billion system wide enplanements in 2039 (see chart 2).

Key forecast variables are global economic growth rates (the U.S. rate is 2.9%, although slowing); real per capita consumption expenditures; and crude oil prices, currently at approximately $65 per barrel, rising to $100 by 2039. Key forecast assumptions include airline load factors, the mix of income levels affecting propensity to travel, population trends, urbanization, job creation, consumption, international trade and tourism, and commercial aircraft fleet mix. The FAA's forecasts are unconstrained and assume that there will be sufficient runway capacity to handle the projected levels of activity. To the extent capacity is not added to meet demand, resulting in even more congestion and delays, the forecasts would likely fall short.

Boeing Co. forecasts a higher 2.8% average increase revenue passenger-kilometers in North America more in line with the historical average. Because the 2019 FAA forecast is prepared before knowing the 2018 actual traffic level, the first year of the 2019 forecast begins below actual 2018 actual results.

Chart 2

image

This general trajectory since 2002 is consistent with historical U.S. domestic and international passenger trends, growing 3.8% annually and with only eight instances of declines since 1971 (see chart 3). Passenger growth is highly correlated to--and in many markets outperforms--GDP, including in the U.S., where real GDP growth has averaged 2.8% since 1971.

Travel also depends on changes in airline business models, which affects overall industry capacity (aircraft multiplied by seats), regulatory issues, and exposure to external shocks like terrorism and foreign travel bans. The U.S. aviation system has proven relatively resilient, although some airports have performed better than others depending on the breadth of their market and the business decisions of their dominant airline. Scheduled available seat miles, as shown in chart 3, is a measure of airline capacity and, when airlines are acting rationally, monitored to improve yields or passenger revenues.

Chart 3

image

Particularly since the Great Recession, steady economic growth and low fuel prices and changes in the airline industry (such as consolidation of carriers, better cost controls and capacity discipline by legacy airlines, revenue growth from unbundled services like baggage fees and meals, low fares, and expanded discount airlines) have resulted in a healthy, sustainable base along with passenger increases. In 2018, airlines posted their 10th consecutive year of profits (combined operating profit of $17.6 billion in 2018 compared with $21.5 billion in 2017) and saw revenues grow at the fastest rate since the Great Recession despite a rise in fuel prices and higher labor costs. For the remainder of 2019, the FAA anticipates a continuation of trends observed among the primary airlines. These include increasing capacity in some markets, adding more seats per aircraft through up-gauging or reconfiguration, more competition with ultra-low cost and nonlegacy airlines that are shifting some domestic capacity to international routes, and improving ancillary revenues.

Air travelers have benefited from lower airfares as inflation and personal incomes have outpaced the average price of tickets. The average round-trip airfare (excluding baggage fees) has declined to $350 in 2018 from $494 in 2000 (see chart 4). Even including baggage and other ancillary fees in the ticket cost (U.S. airlines collected $4.9 billion in 2018), air travel remains relatively affordable.

Chart 4

image

While mainline carriers have actually decreased flights but increased seat capacity, U.S. ultra-low discount airlines (such as Allegiant Travel Co., Frontier and Spirit) have grown flights by 91% and seats by 120%, from a very low base, particularly at medium and small hub airports (see chart 5). Five years ago, approximately 29% of the U.S. domestic market was exposed to ultra-low cost carriers. Today it's approximately 56%. For example, Allegiant operates from over 100 airports connecting small markets such as Savannah, Ga., to Allentown, Pa., while providing flights to major large-hub markets.

Chart 5

image

FAA forecasts have been relatively accurate over a 10-year period, if not slightly conservative, often projecting lower near-term growth coming off years of high traffic growth. Starting with the 2009 FAA forecast, the approximately 1 billion enplaned passengers recorded in 2018 was not projected to occur until 2021 (see chart 6). However, regardless of the starting point, there is a long history of steady growth with intermittent years of dips or declines before continuing a positive trajectory.

Chart 6

image

U.S. Hubs Evolve With Airline Consolidation

As noted, the boom in airport capital spending has been fueled in part by the post-Great Recession return to financial health by U.S. airlines, which began with the Delta-Northwest merger in 2009 followed by a wave of consolidation (see chart 7). This consolidation resulted in more measured capacity expansion by the legacy carriers and better fare discipline but passengers have seen extra fees while benefiting from airlines offering more comprehensive route networks. Furthermore, in recent years, the rise of ultra-low cost carriers has expanded the options available to consumers. These carriers have propelled price competition in select, often underserved markets while contributing to increased demand for air travel.

Based on available seat miles (see charts 8a and 8b), the top four airlines (American Airlines Inc., Delta Air Lines Inc., United Air Lines Inc., and Southwest Airlines Co.) accounted for more than 81% of the U.S. airline industry capacity compared with just 59% in 2008. We believe it's virtually inconceivable that regulators would approve airline consolidation among the legacy U.S. carriers, although mergers among smaller airlines is possible.

Chart 7

image

Chart 8a

image

Chart 8b

image

Consolidation has changed how the major airlines have used their top five hub airports (see table 1a) as the merged operations of the carriers and overlapping city-pair markets were rationalized. The largest legacy airlines--American, Delta, and United--run 45%-53% of their capacity measured in scheduled seats through their primary hubs with the remaining distributed across their network. The share of their top hub (Dallas-Fort Worth, Atlanta-Hartsfield, and Chicago O'Hare) is unchanged, although it declined as acquired airlines' operations became part of the system. The exception has been Southwest, which operates more point-to-point operations, with only about 28% of its seats through its top five airports.

Table 1a

U.S. Airlines' Major Hub Airports By Departing Seats (%)
--American Airlines Inc.--
--2002-- --2007-- --2018--
DFW 16 DFW 22 DFW 14
ORD 11 ORD 12 CLT 11
STL 10 MIA 10 ORD 7
MIA 8 LAX 4 MIA 7
LAX 4 JFK 4 PHL 6
Other systems 51 Other systems 48 Other systems 55
--Delta Air Lines Inc.--
--2002-- --2007-- --2018--
ATL 27 ATL 29 ATL 22
CVG 9 SLC 7 MSP 7
SLC 6 CVG 7 DTW 7
DFW 5 JFK 5 JFK 5
LGA 3 LGA 3 SLC 5
Other systems 50 Other systems 49 Other systems 54
--United Air Lines Inc.--
--2002-- --2007-- --2018--
ORD 21 ORD 20 ORD 13
DEN 13 DEN 14 IAH 11
SFO 10 SFO 9 EWR 10
LAX 8 IAD 9 DEN 9
IAD 6 LAX 7 SFO 9
Other systems 42 Other systems 41 Other systems 48
--Southwest Airlines Co.--
--2002-- --2007-- --2018--
PHX 7 LAS 7 MDW 6
LAS 6 MDW 7 BWI 6
BWI 5 PHX 6 LAS 5
HOU 5 BWI 5 DEN 5
MDW 5 OAK 4 DAL 5
Other systems 72 Other systems 71 Other systems 73
Source for 2002 and 2007 figures: WJ Advisors LLC. Source for 2018 figures: Leigh-Fisher.

Across these airlines, we observe how the hub airport of the acquired airline folds into the acquiring airline's system operations--or not.

  • For American, Dallas-Fort Worth International has remained its primary hub and now is responsible for 14% of the airline's distribution of scheduled seats. From 2002-2018, the status of American's other hub airports changed as the hubs of the acquired U.S. Airways (such as Charlotte-Douglas International and Philadelphia International) are incorporated into the network and other hub airports (such St. Louis Lambert International) are no longer used as connecting facilities.
  • Similarly for Delta, as Atlanta-Hartsfield International has reigned supreme, carrying 22%-27% of all its network's capacity and the dual Northwest Airlines' hubs (such as Minneapolis-St. Paul International and Detroit Wayne County International) took a larger role in the combined network while other airports were de-hubbed (for example, Cincinnati/Northern Kentucky International).
  • With United, Chicago-O'Hare International kept its top spot while the former Continental Airlines hubs of Newark-Liberty International and Houston's George Bush Intercontinental gain importance and San Francisco International and Denver International slipped down the list.
  • For Southwest, Phoenix-Sky Harbor International was its top airport in 2002, but by 2018 it was no longer in the top five, because the elimination of the Wright Amendment (which limited Southwest's use of Love Field in Dallas) allowed the airline to rework its network in that region.

As it relates to airport credit quality, there are two primary conclusions from the consolidation of airlines, route networks and airport hubs:

  • While loss of activity related to de-hubbing can have a negative impact on airport credit quality, airport hub ratings have been generally resilient through airline consolidation. We lowered only two and withdrew one of our 24 airport obligor ratings from 2002-2019 while raising seven (see table 1b). For airports that saw less hubbing activity after consolidation, the generally large service area economies and remaining airlines combined with the airport's moderate debt levels and largely cost recovery nature of the U.S. airport industry business model to support ratings.
  • As the debt, liabilities, and cost structures at U.S. airports increase, fewer airlines generate the fees airports collect through rates and charges, meaning the airports rely more on non-aeronautical revenues from concessions. In fact, most major U.S. airports have begun--or will soon be undertaking--very large capacity-enhancing projects for the primary benefit of a few airlines, resulting in rising costs and leverage. In a severe downturn and with fewer competitors, airlines would be in a stronger position to extract financial benefits or renegotiate lease agreements with airport operators.

Table 1b

Select U.S. Airport Ratings In 2002, 2007, And 2019
--Rating--
Hubbing airline Airport code 2002 2007 2019

Chicago O'Hare International Airport

AA, UA ORD A+ AA A

Dallas Fort Worth International Airport

AA, DL DFW A+ A+ A+

Los Angeles International Airport

AA, UA LAX AA AA AA

Miami International Airport

AA MIA A- A- A

John F. Kennedy International Airport (Port Authority of New York and New Jersey)

AA, DL JFK AA- AA- AA-

Charlotte Douglas International Airport

AA CLT A A AA-

Philadelphia International Airport

AA PHL A A+ A

Hartsfield-Jackson Atlanta International Airport

DL ATL A+ A+ AA-

Cincinnati/Northern Kentucky International Airport

DL CVG NR A NR

LaGuardia International Airport (Port Authority of New York and New Jersey)

DL LGA AA- AA- AA-

Minneapolis-Saint Paul International Airport

DL MSP AA- AA- AA-

Salt Lake City International Airport

DL SLC NR NR A+

Detroit Metropolitan Wayne County Airport

DL DTW A- A A

Denver International Airport

UA, WN DEN A A+ A+

San Francisco International Airport

UA SFO A A A+

Metropolitan Washington Airports Authority

UA IAD A+ AA- AA-

Bush Intercontinental Airport and Hobby Airport

UA, WN IAH A A+ A+

Newark International Airport (Port Authority of New York and New Jersey)

UA EWR AA- AA- AA-

Phoenix Sky Harbor International Airport

WN PHX AA- AA- AA-

Las Vegas McCarran International Airport

WN LAS AA- AA- AA-

Baltimore/Washington International Airport (PFC)

WN BWI NR NR A+

Chicago Midway International Airport

WN MDW A A A

Oakland International Airport (Port of Oakland)

WN OAK A+ A+ A+

Dallas Love Field Airport

WN DAL A BBB+ A

Source: S&P Global Ratings. AA--American Airlines Inc. DL--Delta Air Lines Inc. UA--United Air Ways Inc. WN--Southwest Airlines Co. NR--Not rated.

Capital Needs Run From Huge To Staggering

Depending on the source and the timeframe, infrastructure needs of the U.S. airports range from large to astounding, with projects divided into airside and landside categories. Collected from individual airport master plans and reported in the FAA National Plan of Integrated Airport Systems, the $35.1 billion in needs for the 3,328 public use airports from 2019-2023 only tells part of the story by including only airside projects eligible for federal funding, for generally airside purposes (such as landing areas, taxiways, apron, and navigational aids). On the other hand, airport industry organization Airports Council International-North America (ACI-NA) published its updated capital needs assessment for 2019-2023. It detailed over $114 billion in projects for commercial-service facilities, an increase of more than 30% from the 2017-2021 estimate for what are defined as large, medium, and small airports.

Not surprisingly, the top 30 large airports (those that enplane over 9.4 million annual passengers) are responsible for 72% of passenger volume and $81.1 billion or 71% of all identified capital needs. In fact, the vast majority of large-hub airports that we rate have five-year capital improvement programs of over $1 billion (see table 2 and chart 9). Combined, they total nearly $92 billion. With runway capacity largely built out at key hubs, the large majority of needs are on the landside, including terminal development and investments to move people to and through often site-constrained airport facilities. Over 50% of the needs identified by ACI-NA are for terminals (see chart 8), which are not eligible for FAA grants; and over 65% of all needs are for terminals and critical access projects (such as roadways and people movers). Adding to the cost is a requirement to maintain full operations, extending construction schedules.

Table 2

U.S. Airport Capital Improvement Programs
Code Passengers (mil.) CIP amount (bil. $; rounded) Time period Primary fund use
Hartsfield–Jackson Atlanta International Airport ATL 105.20 2.67 2019-2024 Expansion
Los Angeles International Airport LAX 87.53 13.02 2019-2024 Expansion, Modernization
O'Hare International Airport ORD 80.55 8.00 2018-2023 Expansion, Modernization
Dallas Fort Worth DFW 69.84 3.25 2019-2023 Modernization
John F. Kennedy International Airport JFK 61.91 4.00 2019-2026 Expansion
Denver International Airport DEN 61.54 4.00 2019-2024 Expansion
San Francisco International Airport SFO 57.79 5.00 2019-2023 Modernization
Houston Airport System IAH-HOU 57.67 1.00 2019-2024 Expansion
Seattle-Tacoma Interntational Airport SEA 49.85 3.00 2018-2022 Expansion
Orlando International Airport MCO 47.70 4.00 2016-2025 Expansion
Metropolitan Washington Airports Authority DCA-IAD 47.53 2.00 2015-2024 Modernization
Charlotte-Douglas International Airport CLT 46.44 2.50 2018-2022 Expansion
Newark Liberty International Airport EWR 46.16 5.46 2019-2026 Expansion
Logan International Airport BOS 40.94 4.00 2019-2024 Modernization
Minneapolis–Saint Paul International Airport MSP 38.04 1.20 2019-2025 Modernization
Fort Lauderdale Hollywood International Airport FLL 35.96 3.20 2019-2024 Expansion
Philadelphia International Airport PHL 31.69 2.40 2019-2023 Modernization
New York Laguardia Airport LGA 30.09 8.00 2018-2023 Expansion, Modernization
Baltimore/Washington International Airport BWI 27.15 2.57 2019-2023 Expansion
Salt Lake City International Airport SLC 25.55 3.05 2019-2023 Expansion
San Diego International Airport SAN 24.24 3.00 2017-2021 Modernization
Tampa International Airport TPA 21.29 2.00 2019-2028 Modernization
Portland International Airport PDX 19.88 2.00 2019-2024 Modernization
Louis Armstrong New Orleans International Airport MSY 13.12 1.00 2017-2019 Expansion
Pittsburgh International Airport PIT 9.66 1.10 2019-2025 Modernization
CIP--Capital improvement program.

Chart 9

image

Whatever the range of cost estimates and barring changes in federal infrastructure policy, S&P Global Ratings anticipates more of the same in terms of funding to meet infrastructure needs: a traditional proportion of federal airport or state capital grants, passenger facility charges (PFCs), and municipal bonds secured by airport revenues derived from airline fees and concessions. For select projects, we are likely to see public-private partnerships. particularly for large, complex projects where the public owner seeks risk-sharing, where technical complexity is higher or certain competencies can be tapped.

Policymakers have consistently rejected any increase to the PFC level, capped at $4.50 since 2000 and which raised $3.6 billion across the U.S. airport system in 2018. On one side, the airline industry points to a variety of federal excise taxes and fees and objects to additional aviation system user charges including increases in the airport-levied PFC. Alternatively, airport operators highlight the erosion in the PFC's purchasing power over the past 19 years, and the duplicity in the airline condemnation of any PFC rate increase while collecting over $4.5 billion in luggage charges in 2017 and an estimated $4.9 billion in 2018. We anticipate the $4.50 PFC cap will ultimately rise to help fill the funding gap, although the timeframe for this is uncertain.

Higher Leverage Could Stress Airport Ratings In A Downturn

U.S. airport operators have thus far prudently added capacity in response to growing demands, often at the request of their primary airline tenant and we expect airport operators' rate-setting flexibility to maintain steady finance performance. Absolute airport debt levels have risen--the sector issued close to $17 billion in debt in 2018, the most since 2010, when Build America Bonds were available. Based on our ratings and outlooks, we expect the sector can accommodate the higher debt levels and increasing leverage. The increase in passengers has mitigated debt levels (see table 3). Median debt per enplaned passenger for rated U.S. airports declined slightly, to $82 in 2018 from $86 in 2015. An expanding revenue base has resulted in improved DSC ratios to 1.7x in 2018 from 1.5x in 2015. However, given the capital programs, we expect cost and debt per enplaned passenger will rise to moderately high-to-high levels with those airports keeping steady debt-to-net revenue ratios more likely to maintain credit quality.

Table 3

U.S. Airport Medians
($) 2018 2017 2016 2015
Median operating revenue ($000s) 138,674 135,117 132,476 123,938
Median debt (adjusted; $000s) 489,526 488,605 330,162 359,454
Median debt per enplanement ($) 82.34 83.85 81.80 86.02
Median cost per enplanement ($) 9.27 9.20 8.69 8.60
Median debt to net revenue (x) 6.85 7.25 7.20 7.90
Median DCOH 552 570 521 495
Median S&P Global Ratings-calculated DSC (x) 1.7 1.5 1.5 1.5
Source: S&P Global Ratings. DCOH--Days' cash on hand. DSC--Debt service coverage.

The most recent period that traffic volume declined, in 2008-2009 during the Great Recession and amid rising fuel prices, U.S. airlines reduced capacity and airport management responded as anticipated with belt-tightening on operational costs and delayed capital spending. Overall, we observed:

  • A willingness to increase rates to preserve financial margins;
  • Except for a couple instances, no significant service reductions at major connecting hubs, resulting in reduced activity-based revenues and eroded financial performance;
  • No airline lease rejections with carriers performing as expected under airport use-and-lease agreements;
  • No significant excess capacity from "build-it-and-they-will-come" projects; or
  • No significant increases in cost and debt levels from ongoing or just completed capital programs.

However, since 2009, increasing concentration by U.S. airlines has translated into fewer airport tenants to cover the higher debt and cost levels accompanying the current wave of airport spending. Most operators have so far assumed that local market demand will support airport investment regardless of the airline serving it. While that might work in the long term, it could lead to misjudging in the near term. Excess airport capacity can hurt airport operators or, worse, leave them with infrastructure that no airline will support in a weak market.

The primary risk associated with widespread airline industry consolidation during a significant downturn would be the carrying cost of terminal capacity put back to airport operators that can't recover all their costs through what they charge airlines. Airports are designed for peaking activity and have extra capacity built in. However, for some airport operators, consolidation and rationalization means costs associated with resources that airlines won't need anymore--such as gates, hold rooms, ticket counters, and maintenance facilities. While costs go up, revenues from lost passengers can fall. In an extreme case of a bankrupt carrier abandoning a hub, the airline agreement and ratemaking would not provide bondholders with much security: The costs to remaining airlines could be too much, and the airport operator would likely restructure rates to keep as much air service as possible. Also, an event or trend that so negatively affected one carrier would likely have a similar effect across other carriers, leaving airport operators across the network in a similar, unfavorable position.

Assuming the combined carriers don't abandon the hub-and-spoke model (which is unlikely, because it can yield healthy returns in good times), several primary hubs will continue to serve their operating and geographical requirements. However, in a downturn, second-tier hubs would remain more vulnerable to passenger reductions and, without efforts to balance financial operations, face downgrades. As long as financially troubled airlines continue to operate, primary hub airports face fewer risks to their traffic than secondary and tertiary hubs.

Traditionally, airlines have reacted to downturns by rationalizing routes, and giving primary hubs more traffic than secondary or tertiary hubs. Although this doesn't mean that airlines can't return to secondary or tertiary hubs, the trend of hub rationalization results in near-term increases in traffic for primary hubs. We observed this with the Delta-Northwest merger, which led to downsizing at Cincinnati/Northern Kentucky (whose service area overlaps with Detroit) and Memphis (which has some overlap with Atlanta). While new entrant airlines eventually backfilled some local demand and mitigated some of the financial impacts, airport financial performance suffered.

How will airport credit quality be affected in the next downturn? It depends on the cause and how quickly demand rebounds. Since 1971, there have only been two instances of consecutive years of passenger declines: in 1980-1981 and 2008-2009. Historically, the U.S. airport sector has adapted well to financial pressures associated with the volatile airline industry, weak economic cycles, and shocks to the aviation system. This is because strong business positions and agreements with the airlines allow airport management to increase landing fees and terminal rentals even when airlines are operating in bankruptcy. Historically, in tough times, airport management has done what we would expect them to do to maintain credit quality by containing costs, increasing revenues, reducing capital spending, and restructuring debt. However, as debt and leverage rise, airport operators will have less flexibility to increase airline fees across fewer major airline tenants to compensate for declining passenger volumes. Concession revenues--also dependent on traffic volumes--would also suffer in a down market. Airports with compensatory-style agreements could be more exposed to lower DSC levels and higher debt-to-net revenue levels.

This report does not constitute a rating action.

Primary Credit Analyst:Kurt E Forsgren, Boston (1) 617-530-8308;
kurt.forsgren@spglobal.com
Secondary Contacts:Kevin R Archer, San Francisco + 1 (312) 233 7089;
Kevin.Archer@spglobal.com
Joseph J Pezzimenti, New York (1) 212-438-2038;
joseph.pezzimenti@spglobal.com
Todd R Spence, Dallas (1) 214-871-1424;
todd.spence@spglobal.com
Eva Jani, New York + 1 (212) 438 0114;
eva.jani@spglobal.com
Kayla Smith, Centennial + 1 (303) 721 4450;
kayla.smith@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw or suspend such acknowledgment at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

Any Passwords/user IDs issued by S&P to users are single user-dedicated and may ONLY be used by the individual to whom they have been assigned. No sharing of passwords/user IDs and no simultaneous access via the same password/user ID is permitted. To reprint, translate, or use the data or information other than as provided herein, contact S&P Global Ratings, Client Services, 55 Water Street, New York, NY 10041; (1) 212-438-7280 or by e-mail to: research_request@spglobal.com.


Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back