Worsening macro forecast may dent EMEA airport traffic recovery
The Russia–Ukraine crisis puts pressure on macroeconomic expectations in Europe, potentially dampening a nascent airport traffic post-pandemic recovery, Fitch Ratings says.
Although bookings for this summer have been strong, a potential energy supply shock, leading to protracted high fuel prices, as well as lower economic growth and high inflation, could reverse the positive trends of the past few months.
Post-pandemic pent-up demand, mostly driven by tourists, has been supporting bookings for this year’s summer season. Furthermore, airports’ retail businesses have been performing above management’s expectations, with the food and beverages and duty-free segment posting the strongest results, followed by car rentals.
Savings accumulated during the lockdowns support spending at airports, while less congested shops encourage longer visits. EU airports with higher shares of UK passengers have been experiencing increased sales at duty-free shops due to the newly acquired non-EU tax status of UK travellers from January 2021.
However, the macroeconomic outlook has been deteriorating since the start of the military conflict, leading to high fuel prices. Disruptions could be even greater if supplies of Russian oil and oil products were to be cut off.
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Furthermore, weaker economic growth rates in many European countries, including Italy, Germany, Spain, and, to a lesser extent, France, and the unfolding cost-of-living crisis could quash the positive spending trends. In addition, it remains to be seen if there is sustained demand in off-season periods, particularly from business travellers.
Increased air-ticket prices to compensate higher airline fuel costs, more expensive retail products due to high inflation, and suppressed disposable income available for discretionary leisure spending could affect airport revenues. Airport costs could also be affected by rising energy costs and further-increased prices of suppliers’ contracts when those are up for renewal.
We believe that airports operating under regulatory asset base (RAB) frameworks (such as Aena, Heathrow and ADP) are more protected than those operating under concession contracts with price caps when macroeconomic conditions are weak. Lower operating profits in the aviation segment could typically be recouped at re-setting periods in RAB systems.
However, when inflation is high, timely tariff increases linked to actual inflation may be challenging to execute. Regulators may try to preserve the affordability of airport services for consumers, and airport operators, particularly those operating in catchment areas with other airports, and especially where airport overcapacity is material, may decide not to implement the full tariff increases allowed by regulators so as to stay competitive.
Although the performance of European hub airports was more resilient than that of tourist origin and destination airports during the global financial crisis, post-pandemic international traffic from the Americas and China is still lagging behind intra-European traffic, making hubs equally vulnerable to a potential downturn.
Although our base-case assumptions include a continued airport traffic recovery in Europe, the credit profiles of Fitch-rated airports may come under pressure should a stagflation scenario materialise.
