14-Apr-2020 3:44 AM

COVID-19: Airport finances. Positive results quickly become history

Analysis

Around the world, airports are concluding their annual reports for the financial year ending 31-Dec-2019.

2019 was generally a good year for airports, but the current COVID-19 coronavirus outbreak has made a huge impact on airport finances.

In the case of each airport the reporting for 2019 coincides with the stark realisation that the impact of the COVID-19 coronavirus, which seems to grow each day, together with the potential impact of a global economic recession to follow it, means that these generally healthy 2019 results are likely to be confined to their own sickbed in 2020 - for the entire year and possibly beyond.

At least in China, some progress has been made in combatting the disease.

But the big question for the long term is whether investors will be willing to return to support the capital needs of the industry.

Summary

2019 was generally a good year for airports, but the COVID-19 outbreak has severely impacted airport finances.
The financial results for 2019 are likely to be overshadowed by the impact of the coronavirus pandemic and a potential global economic recession.
Some airports, such as Flughafen Zürich and Fraport, have seen positive financial results in 2019, but their exposure to Latin America could pose challenges as the virus spreads.
Scandinavian airports, like Swedavia and Avinor, have already been affected by new taxes imposed by governments, adding to their financial difficulties.
Sydney Airport faced challenges in 2019 due to bushfires and is now at risk due to the coronavirus outbreak, especially as neighboring markets in Asia have not been as affected yet.
Shanghai Airport Authority reported positive financial results for 2019, but the impact of the virus in China could still affect its performance in 2020.

Summary

2019 was generally a good year for airports, even if not as good as the previous year as traffic growth stalled.
The current, and wholly unanticipated, coronavirus crisis, which began almost as 2020 was chimed in, has put a huge hole in airport finances, and worse is yet to come in most cases.
The selection of financial results for FY2019 details several airports that were firefighting other issues (literally, in the case of Sydney), even before the virus attacked.
In some cases operators have some protection from the geographical spread of their investments; in others they may be a liability.
The news coming out of China suggests that the country may be the first to emerge from the crisis, and with some of its air transport infrastructure left intact. The outlook for others is not so good, and there will be many more months of pain.

The results for most of the operators were positive in 2019, sometimes very positive

The table below is a synopsis of those financial results for a wide range of airport operators across the world, with additional comment.

Those operators are: Flughafen Zürich; Fraport; Swedavia; Avinor; Royal Schiphol Group; OMA (Mexico); Sydney Airport; Flughafen Wien; AENA, Copenhagen Airports and Shanghai Airport.

All but Swedavia and Avinor in Scandinavia and Shanghai Airport Authority are wholly or partially privatised.

Operator	Country	Continents of location/operation	Revenues/currency	EBITDA (+/-)	EBITDA margin (+/-)	Operating profit (+/-)	Net profit (+/-)
Flughafen Zürich	Switzerland	Europe/worldwide	EUR1087.8 million	EUR576.9 million (+12.4%)	53% (+3.5ppts)	-	EUR277.9 million, (+30.0%)
Fraport	Germany	Europe/worldwide	EUR3705.8 million	EUR1180.3 million, (+4.5%)	31.85% (-5.3 ppts)	-	EUR454.3 million, (-10.2%)
Swedavia	Sweden	Europe (Sweden only)	EUR594.6 million	-	-	EUR67.6 million) (+4.0%)	EUR55.6 million (+12.8%)
Avinor	Norway	Europe (Norway only)	EUR1196.3 million	EUR364.1 million, (-14.6%)	30.43% (-4.8ppts)	-	EUR67.5 million (-43.1%)
Royal Schiphol Group	Netherlands	Europe/worldwide	EUR1614.7 million	EUR689 million (+8.5%)	42.67% (+0.57 ppts)	EUR395.1 million (+7.3%)	EUR362.1 million (+26.4%)
OMA	Mexico	Latin America (Mexico only)	USD443.1 million	USD273.9 million (+17.5%)	61.8% (+1.9ppts)	USD252.3 million (+17.5%)	USD167.7 million (+12.7%)
Sydney Airport	Australia	Australasia (Sydney only)	USD1140 million	(EBIT) USD492.0 million (-18.4%)	(EBIT Margin) 43.16%. No comparable figure available	-	USD149.5 million (-42%)
Flughafen Wien	Austria	Europe	EUR857.6 million	EUR384.8 million (+9.8%)	44.9% (+1.1 ppts)
AENA	Spain	Europe/worldwide	EUR4503.3 million	EUR2766.2 million (+4.1%)	61.34 % (-0.017 ppts)	-	EUR1442.0 million (+8.6%)
Copenhagen Airports	Denmark	Europe (Denmark only)	EUR582.0 million	EUR317.4 million (-5.7%)	54.5% (No comparable figure)	-	EUR136.6 million (-7.7%)
Shanghai Airport Authority	China	Asia (China only)	USD1585 million	-	-	USD966.5 million (+18.5%)	USD728.4 million (+18.9%)

Two operators - Flughafen Zürich and Fraport - with exposure to Latin America

Flughafen Zürich increased EBITDA by 12.4%, raising the margin above 50% and net profit by 30%.

Outside Switzerland Flughafen Zürich is active mainly in Latin America, having minimised exposure to India (although it will return there with the New Delhi area airport project). The degree of exposure to Latin America could be problematic for the operator as the virus pandemic spreads.

In Switzerland, 'The Circle', a large retail and office development, is scheduled to open in Sep-2020 at Zurich Airport, providing a revenue boost.

Airports operated by Flughafen Zürich

Fraport is also active in Latin America but has a broader global base and with autonomous divisions in Greece, Bulgaria, Slovenia, Brazil and the U.S.A, where it operates retail facilities.

Such a spread of operations should offer it a degree of protection from the pandemic as its epicentre shifts between continents, but not from a global recession.

As with Flughafen Zürich, Fraport has elected to minimise its presence in India, where it has been a minority investor in Delhi Airport since 2006.

Airports operated by Fraport

A downturn in activity at various times during the year and especially in the early months, caused by airline strikes in Germany, had an adverse effect on Fraport's finances, and it is notable that the performance from the international segment was considerably more positive than from the domestic one.

Scandinavia airports already had passenger tax hikes to deal with before the coming of the coronavirus

Irrespective of pandemics and financial meltdowns, several operators have already been badly affected by the implementation of new taxes by governments, and the two that are the worst examples are in Sweden and Norway, where trying to tax environmental issues rather than work them through sensibly seems to have become the norm.

Hopefully, if there is to be any positive outcome from the pandemic, it will be the silencing of strident calls for more and more taxation on aviation.

Swedish airports operator Swedavia, which controls the 10 leading airports but has no foreign interests, did actually produce a positive result at both the operating and net level - despite the aviation taxes in Sweden, which affect domestic travel even more than international - by growing commercial revenues, especially those from retail operations, to a greater degree than operating costs.

Airports operated by Swedavia

Across in Norway, Avinor is in a similar position with regard to taxation.

Having just closed nine of its smaller airports (there are 44 altogether) on account of the coronavirus pandemic so that it can concentrate resources better at others, Avinor has taken a more proactive approach to dealing with the environmental lobby by adopting a strategy to facilitate the use of electrically operated aircraft (only) on Norwegian domestic flights - and possibly short haul international ones - by 2040.

Avinor is an industry leader in many ways, and has perhaps the most efficient and easy-to-use major airport in Europe at Oslo, its key asset.

Even so, its financial report for 2019 is one of the least impressive, with a significant diminution of EBITDA, EBITDA margin, and net profit, partly accounted for by a particularly weak first quarter (1Q2019), loss of ATC revenues to another organisation taking responsibility for them, and a one-off charge for environmental measures.

As with Swedavia, Avinor has no foreign assets. It has discussed the possibility of entering foreign markets in the past, but has too much responsibility in keeping Norway's far-flung regions in contact with the capital and other large cities.

At least it does build new airports, and recently announced plans for a new airport in the Lofoten Islands in the far north of the country.

Airports operated by Avinor