European Airports’ expansion curbed by Covid travel shifts, ESG
Accelerated corporate, consumer and regulatory scrutiny of air travel emissions, due to the pandemic, could limit EMEA airports’ long-term expansion plans, Fitch Ratings says. In particular, the necessity for business trips that can be replaced by technology, thus reducing the environmental impact of travel, is being reassessed.
EMEA airports experienced strong passenger growth in 2014–2019, with the largest airports (those with over 10 million passengers) demonstrating annual growth of close to 5%, according to the Airports Council International (ACI). As a result, several airports in our rated portfolio operated at close to full capacity in 2019. Terminal capacity was a bottleneck in most cases, which is easier to address than more complex and lengthier new runway projects (as at Heathrow).
Before the pandemic, many airports had been preparing for capacity expansion by issuing debt and accumulating cash to fund these investments. Heathrow, for example, had GBP3.2 billion in cash and committed undrawn lines at the beginning of 2020 earmarked for the third runway construction. Most of these projects were delayed or cancelled at the start of the pandemic, while the accumulated funds strongly supported liquidity during 2020–2021.
It is our view that the increased use of technology in business communication during the subsequent lockdowns and periods of restricted mobility has accelerated structural shifts in travel. This will likely lead to a permanent loss of some business trips, especially by employees of larger corporates that may be less reliant on face-to-face meetings for routine business activities and are willing to adopt more ESG-friendly policies.
Pre-pandemic business travel constituted about 22% of passengers globally in 2019, according to ACI, but a much higher share of revenues, especially for airlines. Therefore, a reducing share of this segment may put pressure on aviation margins, and, in the longer term, lead to a structural shift in airports’ pricing and business models. This adds to uncertainties over a traffic recovery and regulatory pressures to reduce emissions on short- and medium-haul traffic, which will weigh on the credit profiles of rated airports.
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In addition, air travel is a significant contributor to global greenhouse gas emissions; its growth in pre-pandemic years meant that emissions from aviation had been increasing faster than any other mode of transport. However, airports’ direct emissions constitute a small fraction of air travel emissions, with 95%–97% of pollution coming from Scope 3 (indirect) emissions by aircraft.
The airport sector has little influence over these processes, other than by providing suitable refuelling infrastructure and incentives for airlines, such as those incorporated in Heathrow’s landing charges from 2022.
Over the next several years the airports are focusing on decarbonisation of their own operations (Scope 1 emissions) and purchasing electricity from more sustainable sources (Scope 2 emissions).
AENA’s targets are the most ambitious as it aims to become carbon-neutral by 2026 based on Scope 1 and Scope 2 emissions, with most other airports aiming for a similar target by 2030. These targets require additional investments in sustainable energy-generation facilities, vehicle fleet upgrades, recycling solutions and waste management.
The sector is tapping ESG financing, with Aeroporti di Roma issuing several bonds linked to sustainability targets, so that about a third of the company’s gross debt was ESG-focused at end-December 2021.
