Core transportation assets face new threats in 2023

Amidst high inflation, high energy prices, political pressure and post-pandemic travel patterns, the risk profiles of airports and toll roads have diverged.

Despite upticks in traffic levels due to declines in covid-19 infection rates and restrictions, core transportation assets such as toll roads and airports are unlikely to see a return to normal this year.

While leisure travel is expected to boost airports, as well as a re-opening to business from China, a looming recession could dampen business travel, as well as hurt consumer purchasing power of tickets, which have seen steady price increases recently, according to recent research from Fitch Ratings. There is, though, potential mitigation for airport owners.

“The use and lease agreements that are in place with the airports and the airlines provide risk transfer and stability to the sector. The cost recovery frameworks allow a substantial portion of costs to be passed to the airlines offering airports financial profiles. So even in periods with inflationary pressures or potential recession, there is some protection to the airports,” explained Jeffrey Lack, a director of global infrastructure and project finance at Fitch, during a webinar held by the ratings agency.

Lack provided a caveat – staffing issues, as well as operational inefficiencies and a looming recession – do pose threats to the uptick in traffic he expects to see. A recession in particular could dampen business travel, as well as hurt consumer purchasing power, it noted.

On the ground, things aren’t as rosy. Toll roads have traditionally factored inflation into their contracts, allotting for regular fare increases when macro conditions get dicey. However, recent political pressure has changed the landscape, with multiple jurisdictions raising fares to levels below inflation, or sometimes not even raising fares at all.

On top of that, traffic levels aren’t expected to have a post-pandemic boom as those of airports are. While traffic is nearly back to pre-pandemic levels, it’s likely to plateau.

“Commercial traffic has outperformed passenger traffic and recovered within a few months of the initial pandemic shock, benefitting large expressways with material truck traffic; passenger traffic still remains several percentage points below pre-pandemic level, largely due to sustained telecommuting,” said Anne Tricerri, another director of global infrastructure and project finance at Fitch.

And still, the recession would threaten to halt the commercial traffic growth if one were to surface in the coming months.

Another threat? Gas prices. “If gas prices spike again, traffic growth could soften in 2023,” warned Tricerri, though she noted that electric vehicles could mitigate this in the long run. “The Infrastructure Investment and Jobs Act provides $7.5 billion for EV charging infrastructure, including construction upgrades and five years of operating and maintenance costs with the goal of installing 500,000 chargers by 2030,” Tricerri said.

While both airports and toll road assets garnered a “neutral” outlook from the ratings agency for 2023, these might be reflected very differently.