Themes of the Year: Omicron underlines airport sector’s drawn-out recovery

Increasing vaccination rates and an easing of border restrictions suggested the weakened sector might be due for a full recovery soon, but the latest covid variant has set airports back yet again.

From the outset, 2021 seemed unlikely to be an easy year for the airport sector. Hit particularly hard by the arrival of covid-19 in 2020, it looked to be facing a more turbulent recovery than most. Even so – and the emergence of the Delta variant notwithstanding – the rollout of vaccines and the easing of border restrictions brought fresh hope and major deals throughout the year, proving investors were still very much interested in the once high-flying sector.

First came news in February that Signature Aviation had accepted a $4.7 billion bid by Blackstone, Global Infrastructure Partners and Bill Gates’ Cascade Investment Group for the company. Signature Aviation chair Sir Nigel Rudd said at the time: “The [company’s] resilient performance and strong financial position through the pandemic has enabled the Signature directors to consider its future and evaluate this offer from a position of strength.”

This was soon followed by the Brazilian government raising 3.3 billion reais ($583.6 million; €514.7 million) from the privatisation of 22 airports, not far off the sum raised by a previous airport privatisation package in the country in 2019. Announced in April – and coming as it did during the worst of a second wave of covid – it demonstrated a willingness on behalf of investors to see value in airports despite the pandemic.

If that wasn’t proof enough that things were looking up, July brought news of Sydney Airport rejecting a A$22.8 billion ($16.4 billion; €14.5 billion) bid from IFM-led consortium the Sydney Aviation Alliance. In a statement calling out the consortium’s “opportunistic timing”, the company’s board said the bid ultimately undervalued “one of Australia’s most important infrastructure assets”. In the end, it was third time lucky for the consortium – which also comprised AustralianSuper, QSuper and Global Infrastructure Partners – which finally saw its A$23.6 billion take-private bid win over Sydney Airport’s board in September. The final bid valued the airport at more than 26 times pre-pandemic EBITDA, despite being put forward while Sydney and a number of major cities and regional areas in Australia were entering the fourth month of an extended lockdown due to a surge in covid cases across the country.

As vaccination rates continued to increase and border restrictions worldwide eased, it seemed the sector was on its way to a full recovery. Enter Omicron and, with it, a reshuffling of expectations for when the sector might definitively bounce back. Speaking to Infrastructure Investor recently, it was Brent Burnett, managing director in Hamilton Lane’s real assets team, who perhaps saw the sector’s brief hope for a quick turnaround for what it was. “The airport sector will recover,” he said, but “the timeline for that recovery keeps getting pushed out”.

Following the emergence of the new variant, Fitch Ratings said in a report that things are still looking up for the sector, though a full recovery was unlikely to occur as early as had previously been predicted.

“We expect adoption of endemic-style approaches to living with the virus, pent-up demand, global economic growth and supportive governmental travel policies to push air traffic back toward pre-pandemic levels over the next two years,” Fitch said. “However, new, highly contagious variants, such as Omicron, highlight the likelihood operating conditions remain volatile and the downside risk to forecasts.”

Revising its global revenue passenger kilometres forecast for 2022 downward as a result of Omicron – Fitch now predicts global RPKs to be roughly 55 percent, 30 percent and 10 percent below pre-pandemic levels in 2021, 2022 and 2023, respectively – the ratings agency noted that, thanks to increasing vaccination rates, more covid treatment options and borders opening across more countries, “an accelerating pace of recovery” through to 2023 and “a return to pre-pandemic levels” in 2024 can still be expected.