Airport traffic nosedives in April

Long a favourite asset of infra investors, airports' risk profile suddenly changed with the onset of the coronavirus, suffering more than 90% drops in traffic in April.

In the first months of 2020, as the coronavirus pandemic spread and one country after another cut itself off from the world, the airport sector seemed sure to struggle.

The most recent passenger traffic data available – through the end of April – offer a glimpse into how hard airport assets have been hit during the pandemic so far.

After a decade of consistent passenger growth, airports have become a favourite sector for private infrastructure investors, with many viewing such assets as steady and vital parts of the global economy. But as the pandemic spread this year, first through Asia and then across Europe and the US, it became easy to see why airports were imperilled.

“We’re reacting to a shock event that is different than others which has hit the revenues of airlines and airports at magnitudes never seen before,” Seth Lehman, a senior director at Fitch Ratings’ infrastructure group, tells Infrastructure Investor.

“During previous events, like the Great Recession, large-market airports were able to hold their traffic bases better and recover quicker. It’s much more difficult to see whether it will play out that way here.”

In China, where the pandemic began, its main airport, Beijing Capital International Airport, was already seeing major passenger disruptions in March, a month before North American and European airport markets.

Air travel disruptions weren’t limited to China for long. By April, every OECD-market facility saw its passenger traffic falling off a cliff. At both large international hubs and smaller regional airports, passenger traffic fell by more than 90 percent in April.

In the US, airports, which are all government-owned, received bailout money as part of a more than $2 trillion pandemic-related economic stimulus package passed by Congress. The subsidy, Lehman said, will allow airlines to keep “a fair number of flights intact, even though very few passengers will be on them”.

“US airports have more opportunities to right-size their businesses by around October, if nothing else changes,” Lehman explained.

In Europe, where airports have seen similar passenger traffic declines, no such government support is immediately in sight.

Gerhard Schroeder, a managing director at airport operator AviAlliance, a company owned by Canadian pension manager PSP Investments, told Infrastructure Investor that, in a short amount of time, the pandemic changed the entire company’s business plans.

“Until the end of last year, our main focus at the airports we are invested in was on how to cope with growth. We had a number of business plans approved last December which required a significant amount of [capital expenditure],” Schroeder said. “Three or four months later, we are thinking about the opposite. Capex is simply not worth thinking about over the next few years.”