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

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%)

Source: CAPA Airport Profiles/Global Airport Investors Database.

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

Source: CAPA - Centre for Aviation.

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

Source: CAPA - Centre for Aviation.

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

Source: CAPA - Centre for Aviation.

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

Source: CAPA - Centre for Aviation.

More detailed analysis of Swedavia and Avinor may be found here: Sweden and Norway airports: still growing, just

Schiphol Group needs to get Lelystad Airport sorted out in preparation for a return to normality

Royal Schiphol Group has worldwide airport interests, though not on the scale of some of its peers.

Airports operated by Royal Schiphol Group

Source: CAPA - Centre for Aviation.

Financial results for the period were positive, with revenue increases in both aeronautical and non-aeronautical categories.

RSG will take a hit from the loss of the UK carrier Flybe, which was its tenth largest customer at Amsterdam Schiphol Airport, and needs to get the future of the secondary Amsterdam airport at Lelystad sorted out as soon as possible, as prior to the coronavirus Schiphol Airport was experiencing capacity problems (it is not now).

Passenger traffic at Amsterdam Schiphol Airport decreased 20% year-on-year in early Mar-2020, and by 38% and 41% respectively on 13/14-Mar-2020. That reduction is expected to escalate in severity.

OMA prospers by sticking to what it does best

The Mexican operator OMA (Centro del Norte Group - one of three to be privatised in Mexico in the late 1990s) demonstrates the benefits of doing what it does best and sticking to it.

Unlike its peer groups, it has not indulged in foreign airport investment and management, remaining firmly on the Mexican side of US President Donald Trump's wall.

Airports operated by OMA

Source: CAPA - Centre for Aviation.

OMA succeeded in increasing aeronautical and non-aeronautical revenues by an equal amount (11.9%) in the period; also its EBITDA and operating profit, both by 17.5%.

That is an impressive achievement in a country where air travel was destroyed by another viral infection - Swine Flu or H1N1 - in 2009, offering hope to airlines everywhere that there will be a post-COVID-19 future for them.

Much of that success emanates from the strength of the group's 'anchor airport' (the resort city of Acapulco) where traffic grew by 18.4% in 2019, and to the increasing propensity of Mexican citizens to abandon their historical first choice of long distance travel - the bus - in favour of aeroplanes.

Sydney had its own plague to deal with before the virus

Sydney Airport is the last remaining piece in the jigsaw of what used to be one of the most powerful of the world's airport operators, MAp Airports, an offshoot of the Macquarie Group.

In 2019 EBIT was down by 18.4% and net profit by 42%.

CEO Geoff Culbert said the airport is "pleased with the result we've been able to deliver for 2019 in a year that was characterised by some of the toughest trading conditions we've seen since the financial crisis".

He was referring mainly to the bushfires that ravaged southern Australia during the last few months of the year, but also to the emerging impact of the coronavirus - the effects of which hit Australia quite early because of the visitors the country receives from China, many of them passing through Sydney.

In any case, the airport had been hit by double digit profit declines in 1H2019.

Of all the operators featured here, Sydney seems to be the one at greatest risk, especially since major markets in the vicinity of Australia, such as Malaysia, Singapore, the Philippines, Vietnam and Indonesia, do not seem to have been as affected yet by the virus as others have been elsewhere. As of 18-Mar-2020, Sydney Airport shares have nearly halved in value since 27-Dec-2019.

Flughafen Wien has benefited from focusing on the core Viennese product, but could pay the price now

Flughafen Wien AG used to have greater interests outside Austria than it does now, together with a greater interest in developing new ones.

Latterly it has focused more on Vienna Airport itself, where passenger traffic has grown strongly in recent years, putting it in a better position than most to ride the coming storm.

The same is true for Malta Airport, which is partly owned, and where there has been strong traffic growth reported also. EBITDA increased by 9.8%.

In early Mar-2020 Flughafen Wien AG stated that there was still a "high uncertainty" on earnings and traffic related to the effects of the coronavirus phenomenon, but that traffic forecast of +3% to +5% year-on-year and earnings guidance was "still achievable".

Since then, Austrian Airlines has suspended all services for several weeks, and then the airport said most traffic would "come to a standstill" from mid-March-2020.

Such is the new reality.

Airports operated by Flughafen Wien

Source: CAPA - Centre for Aviation.

AENA has ridden out crises before now, but this one will test it

The partially privatised Spanish operator AENA presented a strong financial report, possibly better than expected, taking into account the political situation in Barcelona (location of its second busiest airport), which flared up again in the autumn of 2019, and some tourists avoiding Spain in 2019 in favour of other countries with better exchange rates also.

AENA is protected to a degree by its selective foreign investments, which now include Brazil.

Airports operated by AENA Aeropuertos Internacional

Source: CAPA - Centre for Aviation.

But nothing is going to protect AENA from town and city 'lockdowns' and tourist aircraft turning back in mid-journey because vacationers were likely to be confined to their hotel bedrooms for the duration of their holiday, or even denied entry to the country altogether.

AENA will be looking for a boost from its foreign investments this year.

Copenhagen Airports also has other issues to contend with

Copenhagen Airports was once an investor in foreign airports, then was taken under the wing of large global operators, and in its latest guise is responsible only for Copenhagen's Kastrup and Roskilde airports (although it is bidding for Airports of Montenegro in a consortium).

EBITDA reduced by almost 6% in the year, mainly owing to a severe decline in aeronautical revenues as airlines paid lower charges (for the second year).

In addition, traffic at the airport was affected by a number of bankruptcies, a seven-day strike by SAS pilots, and by Norwegian's new strategy of focusing on profitability rather than growth.

Shanghai - China is where it began and where it will end first

Finally, the Shanghai Airport Authority reported a profitable year, with operating revenue, operating profit and net profit all increasing by 17-19%.

Immediately after the end of the 2019 financial year, the country was hit by the virus. While the effects were not as pronounced in Shanghai as in Wuhan, Shanghai is arguably China's chief commercial city and a domestic and international tourist attraction.

However, the fact that China was the first to experience the virus and the first to see a diminution of new infections (which is the case as this is written) does suggest that Shanghai has the greatest opportunity of all the airports and operators listed here to have any chance of replicating the 2019 result in 2020, even if that is unlikely.

See the following report about the current situation in China: China aviation & travel looking to turn the corner post-COVID-19

COVID-19 will raise significant questions about future investment

This is merely a snapshot of a small number of operators, their generally positive financial results for 2019 and what the future might hold for them. There are many other questions to be asked.

Will airport investment, both public and private, come to a halt as long as the pandemic lasts? Will airline route networks be altered permanently as a result of the crisis? Will new models emerge and old ones such as alliances evaporate? Will primary or secondary airports come out of it better, or neither?

And there are specific issues, such as whether the new Berlin Brandenburg Airport, already delayed for the best part of a decade, actually will open in Oct-2020. The company's CEO is asking for shareholder support from federal and state governments in response to the coronavirus.

Passenger traffic has already slumped at its existing Berlin airports, but will predictably decline even more substantially as the new border controls are imposed across Europe.

CAPA is currently issuing several hundred individual news reports daily on the impact of the crisis on the air transport business.

See https://centreforaviation.com/news.