Airports: Long-anticipated Recovery Maybe Pushed into 2022 or Later, Says S&P
Moneylife Digital Team 27 September 2021
Airports, airlines, services companies, and travellers still have a long wait until global air traffic returns to normal. So far, the recovery has proven to be uneven by region and uncertainty regarding a spike in COVID-19 cases from the delta variant is clouding the industry's prospects, says S&P Global Ratings.
In a report titled "Airports Face A Long Delay To Global Air Traffic Recovery", the ratings agency says it believes the long-anticipated recovery may be pushed well into 2022 or later, particularly if intercontinental air traffic remains subdued, vulnerable as it is to pandemic-related travel restrictions and sluggish business travel.
According to the International Air Transport Association (IATA), domestic travel numbers reached 85% of the 2019 level in July this year across the Americas and Asia, but international traffic only 26% signals an uneven and protracted recovery of global air traffic.
S&P says the situation is mixed in Asia-Pacific, where international travel through Australian airports is just 1%-3% of that in 2019. Although domestic air travel increased to 60%-80%, frequent lockdowns have led to significant.
"The upswing in domestic air travel during the summer contributed to the return of our outlooks on US airports to stable this year, even though the spread of the delta variant of the coronavirus has triggered a more cautious near-term stance," the ratings agency says.
S&P says the resurgence of domestic air travel--which usually accounts for 75%-80% of total air traffic in the US—accelerated throughout the second quarter (Q2) of 2021, leading to a strong summer for airlines and airports. In July, pent-up demand for holidays and leisure travel pushed US air traffic to almost 85% of pre-pandemic levels.
According to recent data, the momentum is likely to taper off in Q4 due to the industry's typical seasonality, alongside an increase in COVID-19 cases that appears to be affecting bookings.
Nonetheless, S&P says, the rebound in traffic and billions of dollars in direct Federal support have stabilised US airport operators' credit profiles. 
"As we expected, business travel and intercontinental flights—which generate a disproportionate share of traffic by revenue passenger kilometres (RPKs) because of the distances involved--have not fared as well. Data from some American airlines show that business-travel passenger numbers stood at roughly 40% of pre-pandemic levels at the end of Q2. Business travel faces additional vulnerability, since some companies' shift to virtual meetings may become permanent," S&P says.
Across the Atlantic, Europe's lack of a sizeable domestic aviation market, cross-border restrictions, emergence of COVID-19 hotspots, and slow vaccination rollouts mean that air travel is trailing far behind the US.
IATA data from May 2021 indicates that air travel across Europe, as measured in RPK, slumped to just 15% of the pre-pandemic level before a modest increase to 23% in June.
What is more, cumulated traffic in January-July 2021 was weaker than S&P's projections, generally reaching a mere 20%-25% of 2019 levels.
"In Europe, however, air traffic reached only 20%-25% of 2019 levels in January-July and almost all our airport ratings still carry negative outlooks; even if traffic picks up to about 40%, the full-year average will be at the bottom of the 30%-50% range we expected," it added.
According to the report, Latin American airports are not recovering at the same pace. The Mexican and Caribbean markets benefited from the summer upturn, seeing a strong recovery as US residents opted for destinations closer to home for their annual vacations.
"This translated into recovery in July 2021 to 80% of the 2019 level, which is much stronger than 56% for Brazil's domestic air traffic in the same period. Air travel growth in the region also contributed to the return to a stable outlook for our rating on the airport in the Dominican Republic. Recovery prospects also allowed Panama's airport to complete a liability management exercise that shifted the maturity of its notes to 2061."
On another positive note, during the peak of the pandemic in 2020, globally, only two issuers, Argentina-based Aeropuertos Argentina 2000 and Uruguay-based ACI Airport Sudamerica SA, undertook distressed debt exchanges, the ratings agency points out.
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