Global credit score company Standard and Poors (S-P) has published several reports on the effect of the pandemic on airport activity.
According to the credit rating agency, airports around the world face a long and slow recovery in traffic and declining profits due to blockades and restrictions of the COVID-19 pandemic.
In addition to the importance of airports’ long-term infrastructure, their monetary strength and flexibility are expected to erode in the long-term foreseeable through the scope and duration of the closure of the existing airport sector, anemic recovery, capacity restructuring and a larger airline risk counterparty
As peak countries succeed at a point where they can “turn a corner” by allowing flights to resume on approved routes, the recent maximum of those reports is repeated here, with more CAPA comments and links to related CAPA reports.
It will need to be read together with CAPA’s own models for a takeover of the airline industry.
Summary
Standard and poor projects:
Airports around the world face a long and slow recovery in traffic and profits due to the blockades and restrictions of the COVID-19 pandemic, according to credit scores from the firm Standard and Poors.
In a recent report, the number of international air passengers estimates that the number of international air passengers will fall by 50% to 55% in 2020 to 2019, a much larger decrease than it had predicted two months earlier. The number of passengers is expected to remain under pre-pandemic grades until 2023.
At the time of publication of the report (late May 2020), S-P stated that since March 2020, it had reduced the scores of 11 airports and attributed negative prospects or negative investments from CreditWatch to a total of 128 issuers and transactions. S-P believes that an additional decrease in the score can be imagined in the coming months and another in June, although the rate of those declines has decreased considerably.
In addition to the importance of airport long-term infrastructure, their monetary strength and flexibility are expected to erode in the long-term foreseeable through the scope and duration of the closure of the existing airport sector, an anemic recovery, capacity restructuring and a larger airline risk counterparty.
COVID-19’s immediate global coverage has encouraged top governments to impose mobility restrictions, adding general bans to incoming travelers or two-week quarantine requirements.
Now that the peak spread of the virus has passed in many countries, several governments must open their borders slowly and selectively. The road to air traffic recovery will have not only the speed of these border openings, but also the capacity of the air fleet and management planning, passenger request and economic burden resulting from the severity of the coronavirus pandemic.
This economic burden is still affected in the peak countries and there is no public communication of the political burden, which can be so wonderful or even more wonderful.
As a result, SP now expects what it calls a “swoosh” recovery for aviation: a slow recovery from a decline, and will be a much longer recovery than the rebounds noticed after the 9/11 terrorist attack, the 2003 SARS pandemic, and the Global Monetary Crisis 2008/2009.
In the long term, SP estimates that air will eventually return once existing fitness and protection disruptions have been “significantly resolved” (unrefined) across industry and customer confidence will recover, backed by normal old air traffic expansion rates of 4% – 5% consistent with the year.
However, more widespread adoption of remote paintings and virtual meetings can have a persistent effect on business travel, which has been the most lucrative passenger segment for airlines.
It is estimated that global passenger air transport will decrease by 50 to 55% this year (see table above)
This takes into account a maximum of 3 months, whose traffic fell below 90% compared to it in 2019 due to blocking measures. This decrease would possibly vary from region to region, depending on the composition of domestic and foreign traffic. For example, European air traffic will be the maximum affected, with a minimum of at least 55%.
Estimates for 2020 and 2021 are relatively aligned with IATA’s new aerial outlook for the next five years, published on 13 May 2020 (see Figure 1 below).
S-P expects a longer recovery, possibly growing beyond 2023, reflecting the many demanding operational situations and unknowns of customer behavior.
The example of mainland China, where the closure is now complete and where new sporadic domestic instances of COVID-19 are reported, provides a review of how the recovery of a global airport can take.
(Note: this was done before the identity of a “second wave” in China).
Air traffic in China is recovering more recently, reaching 40-50% of traffic levels in 2019, compared to a minimum of minus 90% year-on-year by mid-February 2020 (see Figure 2).
However, almost everything that exists is domestic, as China has particularly reduced foreign flights, banned foreign access, and required mandatory quarantine measures for returning residents.
In the post-COVID-19 era (although no one yet knows when it is likely), airports will operate with a “new normal”.
They will have a reserve capacity particularly higher than the pre-pandemic era and will want to be competitive in a smaller and cheaper airline universe. This will increase your exposure to the volume threat and put pressure on your aeronautical income, which generally accounts for more than 50% of total revenue, despite ongoing efforts to generate non-aeronautical revenue (see Charts 3 and 4).
Figure 3 suggests that the percentage of aviation revenues in the harvester decreases in the maximum regions, but increases in Latin America. Overall, there have been few replacements in five years.
He believes airports would possibly be under increased pressure to reduce aviation fares. Many airports in the U.S. have presented airlines with a short-term deferment of rentals and other fares, assuming traffic grades recover.
In Figure 4, there is no transparent trend in average aviation revenues consistent with passengers in any region.
Although shipping flights carrying goods are on the rise (CAPA comment: with passenger planes temporarily converted), they do not compensate for the loss of passenger traffic because the overall volumes are not significant.
See a related CAPA report: Air freight revenue will accrue by 2020, while airlines’ overall revenue will be halved).
Most airports rate a land-based aircraft parking payment, however, those sources of profit are also low.
Many airports are offering one or more parking runways where they have runways, however, there is a growing preference now for using small regional airports for long-term parking. For example, the disused airport of Ciudad Real in central Spain, where temperatures may be similar to Arizona’s, is suddenly popular.
In addition, says S-P, airports can suffer from the weakened credit quality of airlines. We have already noticed measures to alleviate liquidity strain on airlines, such as the European Commission’s resolution to postpone air traffic fares for several months, exacerbating the plight of the airport sector. Weaknesses in the unmarried fund regulatory regime have been left uncovered: is it time to change?
In theory, single-cash regulatory regimes, in which all airport activities, adding aeronautical and advertising activities, are taken into account when calculating airport fares, allow for the re-re-establishing of fares to take into account decreases in passenger volume, but with a delay in time. reset below. However, this style of business was not designed to adjust fares in the face of a large drop in volumes, nor to determine whether airlines can only do so.
The company believes that financially weakened airlines would possibly have a greater bargaining force in the face of declining source and possibly could not or would not be willing to pay higher aviation fares.
In the EMEA domain and other regions, regulatory frameworks based on the weighted average capital load (WACC) are likely to bring little price to the new post-pandemic reality. Airports are expected to be allowed to participate in bilateral industry agreements with airlines, where aviation fares are based on market demand, reduced and eliminated.
Retail profits, which have consistently increased in recent years to 45-50% of the maximum airport profit mix, are likely to be even more severely affected than aviation gains. This is not only due to the decrease in passenger numbers, but also to the decrease in purchasing force due to the overall recession, which will be the average expense consistent with the passenger.
In addition, the revenue that airports expected in the past under guaranteed minimum volumes from retail partners would likely be delayed, or not, if calculated as a percentage of sales.
Tenants may also request rent waivers and deferments or, in the worst case, not interrupt. Commercial and catering facilities face challenges: social distance does not paint catering facilities, while various security protocols can limit retail opportunities.
Although airport credit quality tends to be much more resilient than airlines, one of the weaknesses of airports is that they largely have constant load structures.
As long as an airport is open to flights, even if it is only shipping flights, you will need to maintain the fire, maintenance and operations workers to ensure some safety. If an airport also serves repatriation aircraft, you will need to keep your terminals open and keep light, heating and air conditioning, as well as other utilities. Operating, maintenance and application costs, as well as workers’ body costs, generally account for about a portion of an airport’s costs.
In fact, many airports with multiple terminals have centralized their operations in a single terminal, or even used VIP services from major terminals.
Staff prices account for about one-third of overall operating prices.
Any relief has a tendency to be very limited, limited to cutting executive salaries and redundancying the middle control layer.
Like other industries, some airports have benefited from wage subsidies or abandon plans that are expected to allow an immediate return to complete the operation. However, once the licensing systems are complete, airports will likely begin to resize their operations.
Tocumen International in Panama, which has implemented 50% relief in wages, and Dublin Airport in Ireland, which potentially searches for a significant number of its 3,500 employees, are two recent examples of public airports that take more difficult measures to minimize liquidity intake.
These account for 10-20% of the costs. In Latin America, some governments have liquidity relief by granting the deferment of annual concession payments.
However, the highest governments did not feel the desire to do so, as foreign airports whose S-P fares were based on a position of monetary strength.
Despite representations from advertising organizations like the AIT, airports are truly airlines in line to receive all kinds of positive monetary reports. Sometimes it’s better not to be too successful?
To mitigate the flow of fast money, airports will likely defer significant capital expenditures, as expansion plans are likely to be delayed. Several qualified airports have already reduced their plans by 2020 and 2021 pending an assessment of recovery speed.
Given the weakness of the airline industry, any investment that relies on higher royalties would possibly not occur until there is confidence in economic returns through adequate royalties. It remains to be noted whether the investment of 14 billion pounds on a third runway at London’s Heathrow Airport will again be green, following an appeal for climate coverage reasons.
The exception is Hong Kong International Airport, where the airport authority expects the airport authority to continue with the proposed three-lane formula until its final touch in 2024, given its complex progress (construction began in 2016).
In addition, an accumulation in charge of more curtains probably comes from a desire to invest in generation for contactless baggage registration and handling, or facial popularity for safety.
(See also an earlier CAPA report: many primary airports do not delay their investments despite COVID-19).
While airports have more powerful liquidity than airlines, increased pre-pandemic traffic has left many airports in debt lately. This has two consequences.
First, the continued liquidity intake for operations and the service of debt interest requires them to ensure good enough liquidity. While some governments provide loans and/or guarantees, many others have made it clear that airports will first have to deplete supporting advertising resources, adding equity capital, before seeking government aid.
In the EMEA area, maximum primary national airports can still be comfortable for financing. However, secondary regional airports would likely revel in difficulties (note: especially those that still operate through local, regional or national governments).
In Latin America, Aeropuertos Argentina (Corporación América, indexed on the New York Stock Exchange) and ACI Airport Sudamerica, the respective concessionaires of the international airports of Argentina and Uruguay, have already announced the debt swaps in difficulty to maintain liquidity. This highlighted the restriction to compensate for the decline in income and led to an immediate transition in grades.
Second, it expects some airports to violate restrictive agreements based on the severity of the deterioration of monetary parameters. In general, it expects debt providers to be willing to cooperate and waive restrictive agreements provided that the violations are similar only for the purposes of COVID-19 as to the underlying weakness of the business.
However, creditors may charge more for accepting exemptions.
In conclusion, global ratings recognize a high degree of uncertainty about the rate of spread and peak of the coronavirus epidemic. Some governments believe the pandemic will peak in the middle of the year, and S-P uses this assumption to assess economic and credit implications.
He believes that measures taken to involve COVID-19 have led the economy into recession.
In fact, ratings forecast a deep recession by 2020, and GDP is expected to contract to 7.8% in the EU and up to 5% in the US.
Global credit score company Standard and Poors (S-P) has published several reports on the effect of the pandemic on airport activity.
According to the credit rating agency, airports around the world face a long and slow recovery in traffic and declining profits due to blockades and restrictions of the COVID-19 pandemic.
In addition to the importance of airports’ long-term infrastructure, their monetary strength and flexibility are expected to erode in the long-term foreseeable through the scope and duration of the closure of the existing airport sector, anemic recovery, capacity restructuring and a larger airline risk counterparty
As peak countries succeed at a point where they can “turn a corner” by allowing flights to resume on approved routes, the recent maximum of those reports is repeated here, with more CAPA comments and links to related CAPA reports.
It will need to be read together with CAPA’s own models for a takeover of the airline industry.
Summary
Standard and poor projects:
Airports around the world face a long and slow recovery in traffic and profits due to the blockades and restrictions of the COVID-19 pandemic, according to credit scores from the firm Standard and Poors.
In a recent report, the number of international air passengers estimates that the number of international air passengers will fall by 50% to 55% in 2020 to 2019, a much larger decrease than it had predicted two months earlier. The number of passengers is expected to remain under pre-pandemic grades until 2023.
At the time of publication of the report (late May 2020), S-P stated that since March 2020, it had reduced the scores of 11 airports and attributed negative prospects or negative investments from CreditWatch to a total of 128 issuers and transactions. S-P believes that an additional decrease in the score can be imagined in the coming months and another in June, although the rate of those declines has decreased considerably.
In addition to the importance of airport long-term infrastructure, their monetary strength and flexibility are expected to erode in the long-term foreseeable through the scope and duration of the closure of the existing airport sector, an anemic recovery, capacity restructuring and a larger airline risk counterparty.
COVID-19’s immediate global coverage has encouraged top governments to impose mobility restrictions, adding general bans to incoming travelers or two-week quarantine requirements.
Now that the peak spread of the virus has passed in many countries, several governments must open their borders slowly and selectively. The road to air traffic recovery will have not only the speed of these border openings, but also the capacity of the air fleet and management planning, passenger request and economic burden resulting from the severity of the coronavirus pandemic.
This economic burden is still affected in the peak countries and there is no public communication of the political burden, which can be so wonderful or even more wonderful.
As a result, SP now expects what it calls a “swoosh” recovery for aviation: a slow recovery from a decline, and will be a much longer recovery than the rebounds noticed after the 9/11 terrorist attack, the 2003 SARS pandemic, and the Global Monetary Crisis 2008/2009.
In the long term, SP estimates that air will eventually return once existing fitness and protection disruptions have been “significantly resolved” (unrefined) across industry and customer confidence will recover, backed by normal old air traffic expansion rates of 4% – 5% consistent with the year.
However, more widespread adoption of remote paintings and virtual meetings can have a persistent effect on business travel, which has been the most lucrative passenger segment for airlines.
S-P has revised downwards its fundamental assumptions for global passenger air traffic volumes (from actual traffic in 2019)
It is estimated that global passenger air transport will decrease by 50 to 55% this year (see table above)
This takes into account a maximum of 3 months, whose traffic fell below 90% compared to it in 2019 due to blocking measures. This decrease would possibly vary from region to region, depending on the composition of domestic and foreign traffic. For example, European air traffic will be the maximum affected, with a minimum of at least 55%.
Estimates for 2020 and 2021 are relatively aligned with IATA’s new aerial outlook for the next five years, published on 13 May 2020 (see Figure 1 below).
S-P expects a longer recovery, possibly growing beyond 2023, reflecting the many demanding operational situations and unknowns of customer behavior.
Figure 1: Comparative outlook for air travel, years
Source: S-P.
The example of mainland China, where the closure is now complete and where new sporadic domestic instances of COVID-19 are reported, provides a review of how the recovery of a global airport can take.
(NB this statement was made before any ‘second wave’ was identified in China.)
Air traffic in China is recovering more recently, reaching 40-50% of traffic levels in 2019, compared to a minimum of minus 90% year-on-year by mid-February 2020 (see Figure 2).
However, almost everything that exists is domestic, as China has particularly reduced foreign flights, banned foreign access, and required mandatory quarantine measures for returning residents.
Figure 2: Chinese air slowly recovers
Source: S-P.
In the post-COVID-19 era (although no one yet knows when it is likely), airports will operate with a “new normal”.
They will have a reserve capacity particularly higher than the pre-pandemic era and will want to be competitive in a smaller and cheaper airline universe. This will increase your exposure to the volume threat and put pressure on your aeronautical income, which generally accounts for more than 50% of total revenue, despite ongoing efforts to generate non-aeronautical revenue (see Charts 3 and 4).
Figure 3 suggests that the percentage of aviation revenues in the harvester decreases in the maximum regions, but increases in Latin America. Overall, there have been few replacements in five years.
He believes airports would possibly be under increased pressure to reduce aviation fares. Many airports in the U.S. have presented airlines with a short-term deferment of rentals and other fares, assuming traffic grades recover.
Figure 3: pre-COVID-19 aeronautical gains as a combination of airport gains
Source: S-P.
In Figure 4, there is no transparent trend in average aviation revenues consistent with passengers in any region.
Figure 4: Passenger-consistent aeronautical average before COVID-19
Source: S-P.
Although shipping flights carrying goods are on the rise (CAPA comment: with passenger planes temporarily converted), they do not compensate for the loss of passenger traffic because the overall volumes are not significant.
See a related CAPA report: Air freight revenue will accrue by 2020, while airlines’ overall revenue will be halved).
Most airports rate a land-based aircraft parking payment, however, those sources of profit are also low.
Many airports are offering one or more parking runways where they have runways, however, there is a growing preference now for using small regional airports for long-term parking. For example, the disused airport of Ciudad Real in central Spain, where temperatures may be similar to Arizona’s, is suddenly popular.
In addition, says S-P, airports can suffer from the weakened credit quality of airlines. We have already noticed measures to alleviate liquidity strain on airlines, such as the European Commission’s resolution to postpone air traffic fares for several months, exacerbating the plight of the airport sector. Weaknesses in the unmarried fund regulatory regime have been left uncovered: is it time to change?
In theory, single-cash regulatory regimes, in which all airport activities, adding aeronautical and advertising activities, are taken into account when calculating airport fares, allow for the re-re-establishing of fares to take into account decreases in passenger volume, but with a delay in time. reset below. However, this style of business was not designed to adjust fares in the face of a large drop in volumes, nor to determine whether airlines can only do so.
The company believes that financially weakened airlines would possibly have a greater bargaining force in the face of declining source and possibly could not or would not be willing to pay higher aviation fares.
In the EMEA domain and other regions, regulatory frameworks based on the weighted average capital load (WACC) are likely to bring little price to the new post-pandemic reality. Airports are expected to be allowed to participate in bilateral industry agreements with airlines, where aviation fares are based on market demand, reduced and eliminated.
Retail profits, which have consistently increased in recent years to 45-50% of the maximum airport profit mix, are likely to be even more severely affected than aviation gains. This is not only due to the decrease in passenger numbers, but also to the decrease in purchasing force due to the overall recession, which will be the average expense consistent with the passenger.
In addition, the revenue that airports expected in the past under guaranteed minimum volumes from retail partners would likely be delayed, or not, if calculated as a percentage of sales.
Tenants may also request rent waivers and deferments or, in the worst case, not interrupt. Commercial and catering facilities face challenges: social distance does not paint catering facilities, while various security protocols can limit retail opportunities.
Although airport credit quality tends to be much more resilient than airlines, one of the weaknesses of airports is that they largely have constant load structures.
As long as an airport is open to flights, even if it is only shipping flights, you will need to maintain the fire, maintenance and operations workers to ensure some safety. If an airport also serves repatriation aircraft, you will need to keep your terminals open and keep light, heating and air conditioning, as well as other utilities. Operating, maintenance and application costs, as well as workers’ body costs, generally account for about a portion of an airport’s costs.
In fact, many airports with multiple terminals have centralized their operations in a single terminal, or even used VIP services from major terminals.
Chart 5: Maximum operating expenses of airport prices (2018)
Source: S-P.
Staff prices account for about one-third of overall operating prices.
Any relief has a tendency to be very limited, limited to cutting executive salaries and redundancying the middle control layer.
Like other industries, some airports have benefited from wage subsidies or abandon plans that are expected to allow an immediate return to complete the operation. However, once the licensing systems are complete, airports will likely begin to resize their operations.
Tocumen International in Panama, which has implemented 50% relief in wages, and Dublin Airport in Ireland, which potentially searches for a significant number of its 3,500 employees, are two recent examples of public airports that take more difficult measures to minimize liquidity intake.
These account for 10-20% of the costs. In Latin America, some governments have liquidity relief by granting the deferment of annual concession payments.
However, the highest governments did not feel the desire to do so, as foreign airports whose S-P fares were based on a position of monetary strength.
Despite representations from advertising organizations like the AIT, airports are truly airlines in line to receive all kinds of positive monetary reports. Sometimes it’s better not to be too successful?
To mitigate the flow of fast money, airports will likely defer significant capital expenditures, as expansion plans are likely to be delayed. Several qualified airports have already reduced their plans by 2020 and 2021 pending an assessment of recovery speed.
Given the weakness of the airline industry, any investment that relies on higher royalties would possibly not occur until there is confidence in economic returns through adequate royalties. It remains to be noted whether the investment of 14 billion pounds on a third runway at London’s Heathrow Airport will again be green, following an appeal for climate coverage reasons.
The exception is Hong Kong International Airport, where the airport authority expects the airport authority to continue with the proposed three-lane formula until its final touch in 2024, given its complex progress (construction began in 2016).
In addition, an accumulation in charge of more curtains probably comes from a desire to invest in generation for contactless baggage registration and handling, or facial popularity for safety.
(See also an earlier CAPA report: many primary airports do not delay their investments despite COVID-19).
While airports have more powerful liquidity than airlines, increased pre-pandemic traffic has left many airports in debt lately. This has two consequences.
First, the continued liquidity intake for operations and the service of debt interest requires them to ensure good enough liquidity. While some governments provide loans and/or guarantees, many others have made it clear that airports will first have to deplete supporting advertising resources, adding equity capital, before seeking government aid.
In the EMEA area, maximum primary national airports can still be comfortable for financing. However, secondary regional airports would likely revel in difficulties (note: especially those that still operate through local, regional or national governments).
In Latin America, Aeropuertos Argentina (Corporación América, indexed on the New York Stock Exchange) and ACI Airport Sudamerica, the respective concessionaires of the international airports of Argentina and Uruguay, have already announced the debt swaps in difficulty to maintain liquidity. This highlighted the restriction to compensate for the decline in income and led to an immediate transition in grades.
Second, it expects some airports to violate restrictive agreements based on the severity of the deterioration of monetary parameters. In general, it expects debt providers to be willing to cooperate and waive restrictive agreements provided that the violations are similar only for the purposes of COVID-19 as to the underlying weakness of the business.
However, creditors may charge more for accepting exemptions.
In conclusion, global ratings recognize a high degree of uncertainty about the rate of spread and peak of the coronavirus epidemic. Some governments believe the pandemic will peak in the middle of the year, and S-P uses this assumption to assess economic and credit implications.
It believes the measures adopted to contain COVID-19 have pushed the global economy into recession.
In fact, ratings forecast a deep recession by 2020, and GDP is expected to contract to 7.8% in the EU and up to 5% in the US.