Local stops only

The European Union keeping US passengers off  its revised pandemic travel list means a large chunk of long-haul international flights will take longer to resume operations.

The US passport was once considered to be a pocket-sized gateway to the rest of the world. In the coronavirus era, as the pandemic continues to surge from California to Florida, US travellers increasingly find themselves on the inside looking out, which is not good news for the beleaguered aviation sector.

On 1 July, the European Union lifted travel restrictions for incoming passengers from 15 countries. For a country to make the list, it had to have a number of new reported covid-19 cases in the latter half of June that was close or below the EU average as it stood on 15 June. Each country also had to demonstrate a “stable or decreasing” trend of new cases over that same period. The US, where the number of new daily cases had topped 50,000, did not come close to meeting the EU’s criteria, which also included testing, contact tracing and reliability of available information.

This should be a cause for alarm for airport operators and their investors, which have already been hit hard by the economic disruption caused by the pandemic.

Global gateways and regional hubs around the world saw traffic decline by 90 percent and more when governments began shutting their borders and businesses to stop the spread of the coronavirus. In April, the first full month of pandemic-related lockdowns, London Heathrow reported 210,000 passengers, a 97 percent drop from the 6.8 million who passed through in April 2019. Paris’s Charles de Gaulle Airport saw a 98 percent decline with 130,000 passengers passing through, compared with 6.5 million the year before.

International and domestic travel saw roughly equal traffic declines over the first quarter of 2020. However, the recovery is starting to shape up a little differently, and not in a way that will be most profitable for airports.

As we reported in our July/August cover story, domestic air travel is likely to recover first, as local flights to reconnect families pick up and people make a desperate push for some type of summer holiday. Yet domestic flights don’t bring in the money in quite the same way as long-haul international journeys.

“How an airport recovers will depend on what its airline mix is and why passengers fly to and from there,” Spence Clunie, co-founder of UK infrastructure manager Ancala Partners, told us last month. “[Airlines] are not going to just start flying again. They’re only going to start flying routes that are popular.”

Last September, Ancala acquired a 45 percent stake in Liverpool John Lennon Airport in the north-west of England.

The ban on US travellers will hit European airlines hard. According to data from the US Department of Transportation, the US-Europe market for airline seat capacity was the largest in the world in 2019, with 87.8 million seats or 29.4 percent of the total number worldwide. As long as passengers from the US are not allowed to fly into Europe, the largest piece of market share will be offline, which could compound problems for airport operators.

The industry has already seen an early ramification, with the 30 percent sale of Athens International Airport, a process that began last year, now put on hold during the economic disruption.

However, like other sectors, opportunities may be out there. Paris-based fund manager Meridiam doubled down on the sector last month by moving forward with a 35-year concession to invest in and operate Sofia International Airport.

As investors consider infrastructure strategies within the context of a covid-19 environment, airports with higher domestic and regional market share will continue to be more attractive options for the foreseeable future.

Write to the author at Jordan.s@peimedia.com

We’d also like to remind you that our first virtual event, the Infrastructure Investor Global Offsite 2020, kicks off this coming Monday. Click here to find out more and to register for the event that will be held from 13-15 July, bringing you keynote interviews, panel discussions and the opportunity to network with more than 250 investors and fund managers