Outlook 2024: Airports spotlight – construction activities in freefall and won't recover quickly 2/3
The airports business is in a better position than it was this time in 2022, but 'headwinds' remain, and the Black Swans that habitually inflict misery on the entire industry have not hibernated yet.
In this second of a three-part summary of 2023 and Outlook for 2024 for the sector, it is shown how airport construction projects have been in decline overall for some time, and it is suggested that incremental development is more likely than large-scale projects until the dust has settled.
It looks at the increase in private terminals and questions how the opposed concepts of the Aerotropolis and the 15-minute city square with each other.
More cities will join the coveted 100 million per annum air passengers club this year and in 2024.
In preparation for Part 3, where what's happening with airport financing and development will be examined in more detail, it is confirmed that private sector finance for airports remains hard to come by.
Finally the intriguing results of a private survey are revealed, in which the lack of confidence among airport management about finances and recovery potential is shown to be low.
- Airport construction activities have been in freefall and will not recover quickly.
- Incremental capacity increases to take precedence over 'grands projets'?
- Private terminals are gaining favour.
- Aerotropolis versus 15-minute city; Seconds Out, Round One!
- More airports join or rejoin the 100-million passenger per annum club.
- Private sector finance for airports is still not forthcoming.
READ PART ONE of CAPA - Centre for Aviation's Outlook 2024: Airports spotlight - 2023 turned out to be far better than 2022, but with caveats
Airport construction activities have been in freefall and will not recover quickly
Looking now at projected airport construction activity in 2024, it has been in the doldrums these past few years.
The recent (Nov-2023) CAPA - Centre for Aviation Analyst Perspective report, What needs to be considered in the airport master plan is rapidly changing, noted that CAPA's comprehensive database of airport construction activities globally shows that at present there are 514 known construction projects at airports worldwide, at a combined cost of USD489 billion, and 187 new airport projects at a cost of USD164 billion.
Impressive numbers perhaps, but in reality airport construction projects and expenditure are lagging.
A CAPA report from Dec-2019 (immediately before the COVID-19 pandemic) had the number of existing projects at 1089, valued at USD634 billion, and new airport projects at 288, valued at USD616 billion, taking the total to well over USD1 trillion.
Construction projects for existing airports, by region, as at Dec-2023
You don't have to 'do the math' to see there is a huge divergence in those figures between then and now.
To put it bluntly, airport construction investment is somnambulating as a direct result of the COVID-19 pandemic, inflation, and global tensions; as indeed is investment in most other industries, together with stultified attempts at privatising assets, and there is no sign that any of these pressures will subside in the immediate future.
There are some exceptions - for example in Southeast Asia, where there has been a flurry of projects during 2023, as noted in the CAPA - Centre for Aviation report: New Siem Reap-Angkor International Airport opens, one of many grand projects in Southeast Asia.
There is no indication as yet that there will be any change of note in 2024 if those pressures remain.
Although in the previous decade there has been the (rapid) construction of huge airports in Istanbul and Beijing, the (not so rapid) building of Berlin Brandenburg Airport - which alone took almost two decades - and the abandonment of the New Mexico City airport partway through, there are very few new such projects in the frame presently, apart from the Central Polish Airport.
Those in places like Dubai (Dubai World Central) and Addis Ababa seem to have been abandoned, or restricted to what exists so far.
Incremental capacity increases to take precedence over 'grands projets'?
The way forward for existing larger airports globally will probably be one of incremental capacity increases by way of extension and refurbishment, or new piers, and in rarer cases - complete terminal buildings where they can be justified. And in some cases (it should be all), they will come complete with enhanced passenger protection built into the design, in preparation for any more pandemics.
There has been a spate of new terminal building at the sub-primary airport level in the Middle East (Bahrain, Kuwait, Sharjah, Jeddah) as those places try to catch up with the established hubs at Dubai, Doha and Abu Dhabi, but those initiatives will probably now start to run out of steam.
Public-private partnership deals to finance these constructions globally will proliferate as municipalities continue to run short of funds and/or have to direct available funds elsewhere (see below).
Meanwhile - and there will always be exceptions - new smaller regional and designated 'low cost' airports (which bred like rabbits in the first decade of the 2000s, in Europe in particular) may have had their day on account of a myriad of factors, including environmental opposition, inflated construction costs, and the dangers of appealing only to one business model (lack of flexibility).
See related CAPA - Centre for Aviation report: Is the time up for low cost terminals and piers? Ryanair won't return to Frankfurt without them
One potential exception there is the US, where it is possible that a new administration, or even the existing one, might support the construction of new airports to serve smaller communities, and especially so where they can be test beds for new technologies such as eVTOL, providing sustainably powered (electric/hydrogen) air taxi connections to larger airports.
Similarly, some support might be forthcoming for the conversion of general aviation airfields to handle commercial activities where they are situated on the fringe of metropolitan areas and there is the perception of a need for 'reliever' activity. There are already several US firms specialising in these activities, with actual or planned conversions to handle, separately, passengers and freight.
Right now the construction schedule for new airports, not only in the US but in North America as a whole, can only be described as pathetic, and that has been the case for many years. The CAPA - Centre for Aviation Airport Construction Database lists only three such projects, with 'all' of them in the US. Canada has none, having seemingly abandoned the Pickering Airport project to the northeast of Toronto, although yet another feasibility study was initiated in 2023.
Private terminals are gaining favour
The US is, though, becoming the centre of a growing fashion towards the provision of management-owned and operated, or outsourced, 'Private Terminals' - for regular passengers, rather than those travelling on executive jets, although the two functions can be combined.
The aviation industry is once again slowly but perceptibly, gravitating more in the direction of an 'Us and Them' scenario, with 'elite', 'high financial value' passengers both seeking and being offered fast-tracked, personalised, entrance door-to-gate 'experiences' that segregate them from the hoi polloi. More of these private terminals (which will also handle air taxi flights) can be expected to make their appearance, at least at primary and sub-primary level airports.
Aerotropolis versus 15-minute city; Seconds Out, Round One!
It will be of particular interest to note how the established concepts of the Airport City and the Aerotropolis develop in 2024 in respect of the somewhat newer one (since 2016) of the 15-Minute City, which concentrates human activity in small areas as opposed to the very widely spread aerotropolis.
The two ideologies appear to be in direct conflict, and this dichotomy was examined in a two-part CAPA - Centre for Aviation report this year: Merging the Aerotropolis concept with the '15-minute city' - part one: understanding the notions; part two: Milan under the spotlight.
More airports join or rejoin the 100-million passenger per annum club
On a more light-hearted theme, in 2023 and 2024 several cities will join, or rejoin, the '100 million passengers per annum club'. This is a select group, meaning the sum of the passengers at all of a city's airports has reached that number.
One of them is Istanbul, which now has the largest network of routes in the world at a single airport, a total (as of week commencing 18-Dec-2023) of 298 direct routes at Istanbul Airport, together with a further 125 at the Sabiha Gökçen Airport. Istanbul has been part of the 100mppa club before.
Other cities likely to join or rejoin the club this year are Paris, New York, Los Angeles, Tokyo, Dubai, and Atlanta (a single airport). London will again by far be the largest in terms of passenger numbers at its collective airports with 177 million passengers anticipated in calendar year 2023, based on growth rates in the first eight months of 2023, according to CAPA - Centre for Aviation calculations.
For a city to be one of these airport mega hubs bestows on it a gravitas similar to that accorded by an A-grading in the Globalisation and World Cities (GaWC) Research Network report, and puts the city on the radar of all international long haul airlines.
Further information may be found in the Oct-2023 CAPA - Centre for Aviation report: Airports: Istanbul closes in on rejoining the 100 million annual air passengers by city club
Private sector finance for airports is still not forthcoming
The most pressing question in 2024 is: where will airport finance come from, for construction activities and expansion projects?
The chart below shows which continents had the greatest (Latin and Central America) and least (Africa and North America) private sector participation in airport ownership in 2019 (including partial ownership, leases and management contracts).
Little has changed since then.
Private sector participation in airport ownership in 2019 (including partial ownership, leases and management contracts)
In common with so many other sectors, investment in the airports business has so far not recovered from the successive impacts of the COVID-19 pandemic, the war in Ukraine, suppressed economic activity generally, inflationary pressures and the cost of borrowing; and now the conflict in the Middle East.
Some potential deals that were put on hold in 2020 remain that way.