- Airports across the world face a long, slow climb to recovery from the fall in traffic and revenues due to the COVID-19 pandemic lockdowns and travel restrictions.
- We now estimate global air passenger numbers will drop by about 50%-55% in 2020 compared with 2019, a far steeper decline than we anticipated in March. We expect passenger numbers will stay below pre-pandemic levels through 2023.
- Since March 2020, we have lowered the ratings on 11 airports and assigned negative outlooks or negative CreditWatch placements to a total of 128 issuers and transactions. We believe additional rating downside is possible over the next few months.
- Notwithstanding the long-term infrastructure significance of airports, we expect their financial strength and flexibility will be eroded over the foreseeable future by the magnitude and duration of the current airport sector shutdown, an anemic recovery, capacity restructuring, and heightened counterparty risks of airlines.
A "Swoosh-Shaped" Recovery
The rapid global spread of COVID-19 has encouraged most governments to impose mobility restrictions including blanket bans on incoming travelers or two-week quarantine requirements. Now that the peak of the virus spread appears to have passed in many countries, several governments are looking to slowly and selectively open their borders. The path to air traffic recovery will depend not just on the pace of these border openings, but also on airline fleet capacity and route planning, passenger demand, and the economic burden resulting from the severity of the coronavirus pandemic.
As a result, we now expect a "swoosh-shaped" recovery for aviation--a slow climb back after a rapid decline. It will be a much more protracted recovery than the rebounds observed after 9/11 terror attack, the SARS pandemic of 2003, and the 2008/2009 global financial crisis. Over the longer term, we believe that air travel will eventually return when current health and safety concerns have been meaningfully addressed by the industry and consumer confidence rebounds, supported by steady historical growth rates in air traffic of 4%-5% per year. However, a more widespread adoption of remote working and virtual meetings could have a lingering impact on business travel, which has been the more lucrative passenger segment for the airlines.
|We Have Revised Downward Our Base-Case Assumptions For Global Passenger Air Traffic Volumes (From 2019 Real Traffic)|
|Year||New estimates (versus 2019 actual)||Previous estimate (as of March 2020)|
|2020||Negative 50%-55%||Negative 20%-30%|
|2021||Negative 25%-30%||Negative 10%-15%|
|2022||Negative 15%-20%||Negative 5%|
We now estimate that global passenger air traffic will decline by between 50% and 55% this year (see table 1). This takes into account almost three months in which traffic dropped below 90% in comparison with the same period in 2019 because of the lockdown measures. This decline may vary across regions depending on the mix of domestic and international traffic. For example, we think European air traffic will be the heaviest affected, dropping by at least 55%. Our estimates for 2020 and 2021 are relatively closely aligned with IATA's latest air travel outlook for the next five years, published on May 13 (see chart 1). Still, we expect a more prolonged recovery, possibly stretching through 2023, reflecting the many operational challenges and consumer behavior unknowns.
The example of mainland China, where the lockdown is now over and only sporadic new domestic cases of COVID-19 are being reported, gives some insight into the shape a global recovery for airports might take. Air traffic in China is gradually recovering, more recently to 40%-50% of 2019 traffic levels from a low point of minus 90% year on year in mid-February (see chart 2). However, almost all current travel is domestic because China has significantly slashed international flights, prohibited entry of foreigners, and requires mandatory quarantine measures for returning residents.
Post-COVID-19 Aeronautical Revenues Will Be Significantly Lower
In the post-COVID-19 era, airports will operate under a "new normal". They will have significantly higher spare capacity than in the pre-pandemic period, and will have to compete in a universe of a smaller number and financially weaker airline companies. This will increase their exposure to volume risk and put pressure on their aeronautical revenues, which generally represent over 50% of total revenues (see charts 3 and 4). We believe airports could ultimately face additional pressure to alleviate aeronautical charges. Many airports in the U.S. have offered airlines a deferral in rentals and other fees in the short term under the assumption that traffic levels will rebound.
Even though cargo flights transporting essential goods are on the rise, they do not make up for the loss of passenger traffic because the overall volumes are not material. Most airports charge parking fees for grounded aircraft, but these revenue streams are also relatively small. Moreover, airports could suffer from the debilitated credit quality of airlines. We have already seen measures to alleviate the airlines' liquidity squeeze, such as the European Commission's decision to defer air traffic control fees for several months, which are adding to the woes of the airport industry.
In theory, single-till regulatory regimes--in which all airport activities, including aeronautical and commercial, are taken into consideration to determine airport charges--allow for charges to be reset to adjust for drops in passenger volumes, albeit with a time lag to the next reset. However, this business model has not been designed to adjust tariffs in the face of a massive drop in volumes or to determine whether airlines could afford them. We believe that financially weakened airlines may have stronger negotiating power in the face of lower supply, and may be unable or unwilling to pay higher aeronautical fees. In EMEA and other regions, weighted average cost of capital (WACC)-based regulatory frameworks are likely to bring little value in the new post-pandemic reality. We expect airports may be allowed to enter bilateral commercial deals with airlines, under which aero charges are dictated by market demand, discounted, and sometimes waived.
Non-Aeronautical Revenues Are Also Struggling
Retail revenues, the share of which have risen in recent years to 45%-50% of most airports' revenue mix, will likely be even more heavily hit than aeronautical revenues. This is not just because of the drop in passenger numbers, but also because of lower purchasing power due to the global recession, which will cut average spend per passenger. Furthermore, revenue that airports previously expected under minimum guaranteed volumes from retail partners may be delayed, or not come at all, if calculated as a percentage of sales. Alternatively, tenants may request rent waivers and deferrals or, in the worst case, may not survive the disruption. Commercial and food and beverage services are all challenged: social distancing does not work for catering services, while various safety protocols could restrict retail opportunities.
Airports Under Pressure To Reduce Costs
Although the credit quality of airports tends to be significantly more resilient than that of airlines, one weakness for airports is that they have largely fixed cost structures. As long as an airport is open to flights, even if only cargo flights, it has to maintain firefighting, maintenance, and operating staff to ensure safety. If an airport also serves repatriation planes, it has to keep its terminals open and maintain light, heating and air-conditioning, as well as other utilities. Operational, maintenance, and utility costs, as well as personnel costs (detailed below) usually correspond to about one-half of an airport's costs.
Personnel costs. These usually make up about one-third of total operating costs. Any reduction tends to be very limited, usually restricted to cutting executive salaries and making redundant the middle management layer. Similar to other industries, some airports are benefiting from wage subsidy or furlough schemes that should allow for a rapid return to full operations. Once the furlough schemes are over, however, the airports may start thinking of resizing their businesses. Two recent examples of government-owned airports adopting harsher measures to minimize cash burn include Tocumen International in Panama, which applied a 50% cut in wages, and Dublin Airport in Ireland, which is seeking to cut potentially a significant number of its 3,500 workforce.
Concession fees and taxes paid to governments. These represent 10%-20% of costs. In Latin America, some governments have provided liquidity relief by granting deferral of the annual concession grant payment. However, most governments elsewhere have not felt the need to do so, as international airports that we rate started from a position of strong financial strength.
Capital expenditure deferment. To alleviate immediate cash burn, airports will likely defer major capital expenditure as expansion plans are likely pushed back. A number of rated airports have already reduced their plans for 2020 and 2021 while waiting to assess the speed of recovery. Given the weak state of the airline industry, any capex that is dependent on higher charges may not eventuate until there is confidence in economic returns through appropriate charges. It remains to be seen whether the £14 billion (in 2014 prices) investment in a third runway at London Heathrow Airport will get the green light, following an appeal for climate-protection reasons. The only exception is Hong Kong International Airport, where we expect the airport authority will continue the three-runway system project through to completion in 2024 given its advanced progress (construction started in 2016). In addition, a more material cost increase is likely to come from a need to invest in technology to ensure contactless check-in and luggage handling, or face-recognition at security.
Liquidity Is Crucial
While airports generally have stronger cash positions than airlines, the pre-pandemic boom in traffic has left many airports currently highly debt-leveraged. This has two consequences. First, the ongoing cash burn for operations and servicing debt interest leaves them in need of ensuring adequate liquidity. While some governments are providing loans and/or guarantees, many others have been clear that airports must first exhaust commercial sources of support, including shareholder capital, before appealing for government help. In EMEA, major national airports are still comfortably able to access financing. However, secondary regional airports may struggle. On the other side of the globe, in Latin America, Aeropuertos Argentina and ACI Airport Sudamerica, respective concessionaires of the Argentina and Uruguay international airports, have already announced distressed debt exchanges to preserve liquidity. This has highlighted the limit in offsetting revenue decline and led to a rapid transition of ratings.
Second, we expect some airports to breach covenants depending on the severity of the deterioration of financial metrics. In general, we expect debt providers to be willing to cooperate and waive covenants as long as the breaches are related only to the effects of COVID-19 rather than underlying business weakness. Nevertheless, creditors may attach more onerous requirements to accept waivers.
S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak about midyear, and we are using this assumption in assessing the economic and credit implications. We believe the measures adopted to contain COVID-19 have pushed the global economy into recession (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.
|Infrastructure Global Airports Ratings|
Adelaide Airport Ltd.
Auckland International Airport Ltd.
Australia Pacific Airports (Melbourne) Pty Ltd.
Australia Pacific Airports Corp. Ltd.
Brisbane Airport Corp. Pty Ltd.
Christchurch International Airport Ltd.
Perth Airport Pty Ltd.
Southern Cross Airports Corp. Holdings Ltd.
Sydney Airport Finance Co. Pty Ltd.
Wellington International Airport Ltd.
Airport Authority Hong Kong
Delhi International Airport Ltd.
GMR Hyderabad International Airport Ltd
Narita International Airport Corp.
Aeroports de Paris
Flughafen Zurich AG
Aeroporti di Roma SpA
Royal Schiphol Group N.V.
Schiphol Nederland B.V.
Gatwick Airport Ltd.
Heathrow Funding Ltd.
NATS (En Route) PLC
Aeropuertos Argentina 2000 S.A.
Aeropuertos Dominicanos Siglo XXI S.A
Grupo Aeroportuario del Centro Norte S.A.B. de C.V.
Grupo Aeroportuario del Pacifico S.A.B. de C.V.
Mexico City Airport Trust
Aeropuerto Internacional de Tocumen S.A.
ACI Airport Sudamerica S.A.
Arctic Infrastructure L.P.
AFCO Airport Real Estate Group LLC*
|JFK International Air Terminal LLC||U.S.||BBB+||Watch Neg|
Transportation Infrastructure Properties LLC*
|*Air Cargo Facilities Source: S&P Global Ratings as of May 28, 2020|
|U.S. Public Finance Airport And Passenger Facility Charge|
|Albany International Airport - 1st Lien||NY||A||Negative|
|Albuquerque International Sunport - 1st Lien||NM||A+||Negative|
|Augusta Regional Airport - 1st Lien||GA||BBB||Negative|
|Austin Bergstrom International Airport - 1st Lien||TX||A||Negative|
|Austin Bergstrom International Airport - 2nd Lien||TX||A-||Negative|
|Baltimore/Washington International Airport - 1st Lien PFC||MD||A+||Negative|
|Bradley International Airport - 1st Lien||CT||A+||Negative|
|Burbank-Glendale-Pasadena Airport Authority - 1st Lien||CA||A+||Negative|
|Bush Intercontinental Airport and Hobby Airport - 2nd Lien||TX||A+||Negative|
|Charleston County Airport - 1st Lien||SC||A+||Negative|
|Charlotte/Douglas International Airport - 1st Lien||NC||AA-||Negative|
|Chicago Midway International Airport - 1st Lien||IL||A||Negative|
|Chicago Midway International Airport - 2nd Lien||IL||A||Negative|
|City of Palm Springs - 1st Lien PFC||CA||A||Negative|
|Cleveland Hopkins International Airport - 1st Lien||OH||A||Negative|
|Dallas-Fort Worth International Airport - 1st Lien||TX||A+||Negative|
|Dayton International Airport - 1st Lien||OH||BBB+||Negative|
|Denver International Airport - 1st Lien||CO||A+||Negative|
|Denver International Airport - 2nd Lien||CO||A||Negative|
|Des Moines International Airport - 1st Lien||IA||A+||Negative|
|Detroit Metro Wayne County Airport - 1st Lien||MI||A||Negative|
|Detroit Metro Wayne County Airport - 2nd Lien||MI||A-||Negative|
|El Paso International Airport - 1st Lien||TX||A+||Negative|
|Fort Lauderdale-Hollywood International Airport - 1st Lien||FL||A+||Negative|
|Fresno Yosemite International Airport - 1st Lien||CA||A||Negative|
|Guam International Airport - 1st Lien||GU||BBB+||Negative|
|Hartsfield Jackson Atlanta International Airport - 1st Lien||GA||AA-||Negative|
|Hartsfield Jackson Atlanta International Airport - 2nd Lien||GA||AA-||Negative|
|Hawaii Airport System - 1st Lien||HI||AA-||Negative|
|Hawaii Airport System - 2nd Lien||HI||A+||Negative|
|Indianapolis International Airport - 1st Lien||IN||A||Negative|
|Jackson County Rogue Valley Intl Medford Airport - 1st Lien||OR||A||Negative|
|John Wayne Airport - 1st Lien||CA||AA-||Negative|
|Kansas City International Airport - 1st Lien||MO||A||Negative|
|Lambert-St. Louis International Airport - 1st Lien||MO||A||Negative|
|Las Vegas-McCarran International Airport - 1st Lien||NV||AA-||Negative|
|Las Vegas-McCarran International Airport - 2nd Lien||NV||A+||Negative|
|Las Vegas-McCarran International Airport - 3rd Lien||NV||A+||Negative|
|Los Angeles International Airport - 1st Lien||CA||AA||Negative|
|Los Angeles International Airport - 2nd Lien||CA||AA-||Negative|
|Louisville International Airport - 1st Lien||KY||A+||Negative|
|Love Field Airport Modernization Corporation - 1st Lien||TX||A||Negative|
|Manchester Airport - 1st Lien||NH||BBB+||Negative|
|Massachusetts Port Authority (Boston Logan International Airport) - 1st Lien||MA||AA||Negative|
|Memphis International Airport - 1st Lien||TN||A||Negative|
|Miami International Airport - 1st Lien||FL||A||Negative|
|Minneapolis-St. Paul International Airport - 1st Lien||MN||AA-||Negative|
|Minneapolis-St. Paul International Airport - 2nd Lien||MN||A+||Negative|
|Mobile Airport Authority - 1st Lien||AL||BBB+||Negative|
|Myrtle Beach International Airport - 1st Lien||SC||A+||Negative|
|Nashville International Airport - 1st Lien||TN||A+||Negative|
|New Orleans International Airport - 1st Lien||LA||A||Negative|
|Norfolk Airport Authority - 1st Lien||VA||A||Negative|
|O'Hare International Airport - 1st Lien||IL||A||Negative|
|O'Hare International Airport - 1st Lien PFC||IL||A||Negative|
|Okaloosa County - 1st Lien||FL||A-||Negative|
|Omaha Eppley Airfield - 1st Lien||NE||AA-||Negative|
|Ontario International Airport - 1st Lien||CA||A-||Negative|
|Orlando International Airport - 1st Lien||FL||AA-||Negative|
|Orlando International Airport - 2nd Lien||FL||A+||Negative|
|Palm Beach International Airport - 1st Lien||FL||A+||Negative|
|Philadelphia International Airport - 1st Lien||PA||A||Negative|
|Pittsburgh International Airport - 1st Lien||PA||A-||Negative|
|Port of Seattle (Seattle-Tacoma International Airport) - 1st Lien||WA||AA-||Negative|
|Port of Seattle (Seattle-Tacoma International Airport) - 1st Lien PFC||WA||A+||Negative|
|Port of Seattle (Seattle-Tacoma International Airport) - 2nd Lien||WA||A+||Negative|
|Port of Seattle (Seattle-Tacoma International Airport) - 3rd Lien||WA||A+||Negative|
|Portland International Airport - 1st Lien||OR||AA-||Negative|
|Portland International Airport - 1st Lien PFC||OR||A+||Negative|
|Portland International Jetport - 1st Lien||ME||A-||Negative|
|Sacramento International Airport - 1st Lien||CA||A+||Negative|
|Sacramento International Airport - 2nd Lien||CA||A||Negative|
|Salt Lake City International Airport - 1st Lien||UT||A+||Negative|
|San Antonio International Airport - 1st Lien||TX||A+||Negative|
|San Antonio International Airport - 2nd Lien||TX||A||Negative|
|San Diego County Regional Airport Authority - 1st Lien||CA||A+||Negative|
|San Diego County Regional Airport Authority - 2nd Lien||CA||A||Negative|
|San Francisco International Airport - 1st Lien||CA||A+||Negative|
|San Jose International Airport - 1st Lien||CA||A||Negative|
|Sky Harbor International Airport - 1st Lien||AZ||AA-||Negative|
|Sky Harbor International Airport - 2nd Lien||AZ||A+||Negative|
|Southwest Florida International Airport - 1st Lien||FL||A||Negative|
|T. F. Green International Airport - 1st Lien||RI||A||Negative|
|Tampa International Airport - 1st Lien||FL||AA-||Negative|
|Tampa International Airport - 2nd Lien||FL||A+||Negative|
|Tri-Cities Airport - 1st Lien||WA||A-||Negative|
|Tulsa International Airport - 1st Lien||OK||A||Negative|
|Washington Dulles International Airport and Reagan National Airport - 1st Lien||DC||AA-||Negative|
|Will Rogers World Airport - 2nd Lien||OK||A+||Negative|
|Source: S&P Global Ratings as of May 28, 2020|
|U.S. Public Finance Special Facilities|
|Austin-Bergstrom International Airport Rental Car Special Facility - 1st Lien||TX||A||Negative|
|Bradley International Airport Rental Car Facility - 1st Lien||CT||A-||Negative|
|Bush Intercontinental Airport Rental Car Facility - 1st Lien||TX||A||Negative|
|Charlotte/Douglas International Airport Rental Car Facility - 1st Lien||NC||A||Negative|
|Chicago O'Hare International Airport Rental Car Facility - 1st Lien||IL||BBB||Negative|
|Hartsfield Jackson Atlanta International Airport Rental Car Facility Project- 1st Lien||GA||A||Negative|
|Hawaii Airport System - 1st Lien||HI||A+||Negative|
|LAXFUEL Corporation - 1st Lien||CA||A||Negative|
|Massachusetts Port Authority Rental Car Facility - 1st Lien||MA||A||Negative|
|Nashville International Airport Rental Car Facility - 1st Lien||TN||A||Negative|
|New Orleans Aviation Board Rental Car Facility - 1st Lien||LA||A||Negative|
|Phoenix Sky Harbor International Airport Rental Car Facility - 1st Lien||AZ||A||Negative|
|Portland International Airport - CFCs - 1st Lien||OR||A-||Negative|
|Rhode Island Economic Development Corporation Rental Car Special Facility - 1st Lien||RI||A||Negative|
|San Antonio International Airport - 1st Lien||TX||A||Negative|
|San Diego Cnty Regl Arpt Auth Rental Car Facility - 1st Lien||CA||A||Negative|
|SEATAC Fuel Facilities, LLC - 1st Lien||WA||A||Negative|
|SFO Fuel Co LLC - 1st Lien||CA||A||Negative|
|Tampa International Airport CONRAC - 1st Lien||FL||A||Negative|
|Source: S&P Global Rating as of May 28, 2020|
- Six European Airlines Downgraded As COVID-19 Impact Erodes Credit Metrics; Majority Still On Watch Negative, May 20, 2020
This report does not constitute a rating action.
|Primary Credit Analysts:||Julyana Yokota, Sao Paulo + 55 11 3039 9731;|
|Tania Tsoneva, CFA, Dublin +353 1 568 0611;|
|Parvathy Iyer, Melbourne (61) 3-9631-2034;|
|Gloria Lu, CFA, FRM, Hong Kong (852) 2533-3596;|
|Kurt E Forsgren, Boston (1) 617-530-8308;|
|Beata Sperling-Tyler, London (44) 20-7176-3687;|
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