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Airports Face A Long Delay To Global Air Traffic Recovery

Airports, airlines, services companies, and travelers still have a long wait until global air traffic returns to normal. So far, the recovery has proven to be uneven by region, and uncertainty regarding a spike in COVID-19 cases from the delta variant is clouding the industry's prospects. S&P Global Ratings believes the long-anticipated air traffic recovery may be pushed well into 2022 or later, particularly if intercontinental travel remains subdued, vulnerable as it is to pandemic-related restrictions and sluggish business travel.

Global Air Traffic Trends
World share --July 2021 (% recovery vs same month in 2019)-- --July 2021 (% decline vs same month in 2019)--
Total market 100.0 46.9 54.8 (53.1) (45.2)
International 45.8 26.4 36.2 (73.6) (63.8)
Domestic 54.2 84.4 89.3 (15.6) (10.7)
RPK--Revenue passenger kilometer. ASK--Available seat kilometer (capacity). Source: IATA.

The U.S.' Large Domestic Market Is Buoying Air Traffic

The resurgence of domestic air travel--which normally accounts for 75%-80% of total air traffic in the U.S.--accelerated throughout the second quarter (Q2) of 2021, leading to a strong summer for airlines and airports. In July, pent-up demand for holidays and leisure travel pushed U.S. air traffic to almost 85% of prepandemic levels. The momentum is likely to taper off in Q4 due to the industry's typical seasonality, alongside an increase in COVID-19 cases that appears to be affecting bookings, according to recent data.

Nonetheless, the rebound in traffic and billions of dollars in direct federal support have stabilized U.S. airport operators' credit profiles. This resulted in a return to stable outlooks for the majority of operators we rate in March 2021, and positive outlooks for a few not-for-profit airports in recent weeks. Similarly, our ratings on U.S. airlines now carry stable or positive outlooks, although they remain one to four notches below prepandemic levels.

As we expected, business travel and intercontinental flights--which generate a disproportionate share of traffic by revenue passenger kilometers (RPKs) because of the distances involved--have not fared as well. Data from some American airlines show that business-travel passenger numbers stood at roughly 40% of prepandemic levels at the end of Q2. Business travel faces additional vulnerability, since some companies' shift to virtual meetings may become permanent.

Passenger Numbers In Europe May Barely Reach 30% Of 2019 Levels

Across the Atlantic, Europe's lack of a large domestic aviation market, cross-border restrictions, emergence of COVID-19 hotspots, and slow vaccination rollouts mean that air travel is trailing far behind the U.S. IATA data from May 2021 indicates that air travel across Europe, as measured in RPK, slumped to just 15% of the prepandemic level before a modest increase to 23% in June. What's more, cumulated traffic in January-July 2021 was weaker than our projections, generally reaching a mere 20%-25% of 2019 levels.

Nevertheless, we saw some improvement during the summer. In July, certain rated European airports registered 40%-50% of prepandemic volumes as vaccination rates progressed and the EU's Digital COVID Certificate made crossing borders smoother. Should this trend continue, average air traffic volumes may reach 30% this year, which is at the bottom of the 30%-50% range we forecast in February. Moreover, some airports with weaker domestic demand or stricter travel restrictions, such as in the U.K., may see average traffic numbers well below 30%.

Almost all of our ratings on European airports carry negative outlooks after being lowered by one to two notches in 2020. A key credit consideration for our ratings in the sector is liquidity, which overall remains sound and critical in bridging the gap to a longer-than-expected recovery. We expect air travel should gain momentum in 2022, when European traffic is set to recover to 72% of 2019 levels from 50% this year, according to aviation advocate Eurocontrol's projections.

Asia-Pacific Won't See A Smooth Broad-Based Air Travel Rebound

The domestic market in China bounced back quickly and almost reached prepandemic levels in July 2021. Yet vaccination rates have been relatively low across Asia, and many governments have adopted a risk-averse approach to the pandemic, with some pursuing a strategy that involves restricting travel to minimize virus transmission, notably in view of the delta variant.

Vaccinations have been slow in Australia, but are speeding up and should approach 70% by the end of October. However, domestic traffic slid in July to 25% of prepandemic numbers, after getting to 50%-70% in June. In contrast, New Zealand's airports have seen domestic traffic return to 80%-90% of prepandemic levels due to shorter, targeted lockdowns over the past year. The trans-Tasman travel bubble has been tested many times and the surge in traffic observed under quarantine-free conditions suggests that there is still a propensity to travel once the pandemic subsides. New Zealand expects 70% of its population will be vaccinated by the end of 2021, in time for its summer season.

Latin American Airports Aren't Recovering At The Same Pace

The Mexican and Caribbean markets also benefited from the summer upturn, seeing a strong recovery as U.S. residents opted for destinations closer to home for their annual vacations. This translated into a recovery in July 2021 to 80% of the 2019 level, which is much stronger than 56% for Brazil's domestic air traffic in the same period.

Air travel growth in the region also contributed to the return to a stable outlook for our rating on the airport in Dominican Republic. Recovery prospects also allowed Panama's airport to complete a liability management exercise that shifted the maturity of its notes to 2061. On another positive note, during the peak of the pandemic in 2020, only two issuers globally undertook distressed debt exchanges: Argentina-based Aeropuertos Argentina 2000 and Uruguay-based ACI Airport Sudamerica S.A.

Appendix: Selected Rated Airport Issuers

Corporate issuers Long-term rating Outlook Country Region

San Jose International Airport

A- Stable U.S. Americas

Tulsa International Airport

A- Positive U.S. Americas

Adelaide Airport Ltd.

BBB Negative Australia Asia

Airservices Australia

AAA Stable Australia Asia

Australia Pacific Airports Corp. Ltd.

BBB+ Negative Australia Asia

Brisbane Airport Corp. Pty Ltd.

BBB Negative Australia Asia

Perth Airport Pty Ltd.

BBB Negative Australia Asia

Southern Cross Airports Corp. Holdings Ltd.

BBB+ Negative Australia Asia

Airport Authority Hong Kong

AA+ Stable Hong Kong Asia

Delhi International Airport Ltd.

B- Positive India Asia

GMR Hyderabad International Airport Ltd.

BB- Negative India Asia

Incheon International Airport Corp.

AA Stable Korea, Republic of Asia

Auckland International Airport Ltd.

A- Stable New Zealand Asia

Christchurch International Airport Ltd.

BBB+ Stable New Zealand Asia

Wellington International Airport Ltd.

BBB Stable New Zealand Asia

Taoyuan International Airport Corp.

AA- Positive Taiwan Asia

Aeroports de Paris

A Negative France EMEA

daa PLC

A- Negative Ireland EMEA

Aeroporti di Roma SpA

BBB- Positive Italy EMEA

Royal Schiphol Group N.V.

A Negative   Netherlands EMEA

Avinor AS

A Negative   Norway EMEA

Flughafen Zurich AG

A+ Negative   Switzerland EMEA

NATS (En Route) PLC

A+ Negative   U.K. EMEA

Aeropuertos Argentina 2000 S.A.

CCC+ Negative Argentina LatAm

Aeropuertos Dominicanos Siglo XXI S.A.

B+ Stable Dominican Republic LatAm

Grupo Aeroportuario del Centro Norte S.A.B. de C.V.

mxAAA Stable Mexico LatAm

Grupo Aeroportuario del Pacifico S.A.B. de C.V.

mxAAA Stable Mexico LatAm
Rated debt issues

A.B. Won Pat International Airport Authority

BB+ Negative Guam Americas

Las Vegas McCarran International Airport

A+ Positive U.S. Americas

Los Angeles International Airport

A+ Positive U.S. Americas

Love Field Airport Modernization Corp

A- Positive U.S. Americas

Ontario International Airport Authority

A- Negative Canada Americas

Rock Island County Metropolitan Airport Authority (GO)

A Stable U.S. Americas

San Francisco International Airport

A Stable U.S. Americas

Heathrow Funding Ltd.

BBB+ Negative U.K. EMEA

Gatwick Funding Ltd.

BBB Negative U.K. EMEA

ACI Airport Sudamerica S.A.

CCC Negative Uruguay LatAm

Aeropuerto Internacional de Tocumen S.A.

BBB Stable Panama LatAm

Mexico City Airport Trust

BBB Negative Mexico LatAm
EMEA--Europe, the Middle East, and Africa. LatAm--Latin America.

Related Research

Editor: Bernadette Stroeder.

This report does not constitute a rating action.

Primary Credit Analysts:Julyana Yokota, Sao Paulo + 55 11 3039 9731;
Pablo F Lutereau, Madrid + 34 (914) 233204;
Parvathy Iyer, Melbourne + 61 3 9631 2034;
Philip A Baggaley, CFA, New York + 1 (212) 438 7683;
Izabela Listowska, Frankfurt + 49 693 399 9127;
Secondary Contacts:Kurt E Forsgren, Boston + 1 (617) 530 8308;
Karl Nietvelt, Paris + 33 14 420 6751;
Stefania Belisario, Madrid +34 91 423 3193;

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