Outlook 2024: Airports spotlight – a few deals late in the day in 2023 offer some hope 3/3

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

READ PART TWO of CAPA - Centre for Aviation's Outlook 2024: Airports spotlight - construction activities in freefall and won't recover quickly

A few deals late in the day in 2023 offer some hope

Major M&A activity mainly came towards the end of 2023, such as: the sale of a government stake in Athens International Airport to an existing private sector shareholder; the sale of Ferrovial's stake in London Heathrow Airport to French and Saudi investors which is awaiting ratification; and the PPP contract to rehabilitate Manila's Ninoy Aquino International Airport.

The excitement generated by the sale of Sydney Airport at the beginning of 2022 did not 'kick start' M&A activities globally, as CAPA - Centre for Aviation (and others) believed it would. The external pressures have proved to be too decisive for that.

However, interestingly, there has been some movement within Australia itself in 2023, where there has been, or will be, divestment of equity holdings in leases by investment funds at some of the airports there (Queensland, Perth etc.). These airports were first privatised by lease as long ago as the late 1990s; those funds are turning their attention elsewhere.

There is some potential in 2024 for a role reversal of the present situation, whereby many Australian funds invest in European airports.

With the Saudi Arabian Public Investment Fund (the country's Sovereign Wealth Fund) now about to take a 10% stake in London Heathrow Airport, in addition to an already sizeable holding by the Qatar Investment Authority, all the signs are that more Middle Eastern Sovereign Wealth and other investment funds will seek to invest into European airports where, as and when they can, and also possibly in South Asia, so long as political and public opinion does not turn against it.

In Latin America the Brazilian airport concessions project is now more or less completed with the disposal of São Paulo Congonhas Airport, but more re-concessions could follow in 2024.

In Asia, Japan's concession programme went on hold in 2023, with no new deals completed and with little information forthcoming on how and when it will pick up in 2024. But the country is only 10% into a target of privatising almost 100 airports in total, and any significant change in economic circumstances will probably revitalise it rapidly.

In Africa, a continent which has consistently been billed as 'the one to watch' for future aviation growth, VINCI Airports' concession on seven airports in Cape Verde this year could point the way forward for Africa a whole - as CAPA - Centre for Aviation ventured in the report: Cape Verde: VINCI's concession for seven airports begins - a model for Africa?.

That, and the completion of the partly foreign-funded Bugesera Airport in Kigali, the capital of Rwanda.

And Africa desperately needs foreign investment if its airports are going to be fit for purpose. As Nigeria's Minister of Aviation and Aerospace said in Sep-2023, financial liquidity issues are affecting the entire African aviation sector, including terminals, runways and safety equipment.

Nigeria itself is in the midst of a long running battle to privatise its airports in the face of fierce resistance from opposition parties and trade unions, and had somehow managed to attract the attention of Corporación América Airports, to which concessions on Abuja and Kao airports were granted in Jun-2023; also TAV Airports and GMR Infrastructure.

But the concession deals have been suspended while "allegedly non-transparent processes" are examined; the sort of processes that have hampered African airport privatisation and will continue to do so in 2024, even in those countries that will likely sign up to be BRICS members.

The US continues to shape the growth in PPP/P3 infrastructure deals, spreading regionally and throughout the world

It is probably the United States that will, for a change, be the most inviting prospect for the airport investment community in 2024.

Potentially on account of a potential change of government, and with it a change of attitude to the contribution of the private sector to airport development, and partly because of the existing trends towards public-private sector (P3 as it is known in the US) funding for designated projects - from new terminals to car rental centres, to people movers to cargo terminals.

P3 activity has already resulted in terminals being completed across the New York airports, and especially at LaGuardia, a city that has become the de facto US centre for it. Also diverse projects at other major airports such as Los Angeles (LAX) and a succession of terminal building and management projects at secondary level airports across the country, with several firms now specialising in them.

At the same time, expect the calls for more public cash to be invested in airports by organisations such as Airports Council International-North America, in what has become an annual ritual as slavishly followed as Halloween.

The PPP/P3 trend in the US seems also to have spread to nearby Caribbean islands, such as the US Virgin Islands and the Turks and Caicos islands (UK), It has increasingly put in an appearance in other continents, such as at Nairobi in Kenya, across India generally, and possibly now in Malaysia, where a series of possible PPP deals is being considered.

Green finance options to proliferate, along with carbon accreditation schemes

Across all continents access to 'green finance' - the financing of projects and initiatives that have positive environmental impacts, such as reducing greenhouse gas emissions and promoting renewable energy - will play an ever-increasing part in the funding of airports.

In Nov-2023 The World Economic Forum, the unelected 'International non-governmental organisation for public - private sector collaboration' produced a White Paper - 'Financing the Airports of Tomorrow: a Green Transition Toolkit'.

Even though its own Executive Summary states in its opening paragraph, "Aviation contributes about 2% of total world emissions, primarily from the burning of fossil fuel by airlines" (a figure which never changes, just like the completion of a new coal-fired power station in China every 10 days never varies), that tells you all you need to know about where green financing is going.

Even without a drive towards green finance, airport management can expect unrelenting pressure to sign up to or improve their status on carbon accreditation programmes of the type run by ACI, which are now very comprehensive. There are hundreds of airports involved, many of which have reached the highest accreditation levels.

Airports may be forced to engage in trade-offs, for example being allowed additional night flights in exchange for enforcing the use of cleaner 'new generation' aircraft.

It is inevitable that municipal and national authorities will increasingly bring to bear the weight of their power of veto over airport expansion proposals if green demands are not satisfied.

Pressure groups expanding

Meanwhile, lurking in the background are the extreme pressure groups, their 'gravitas' exemplified by their academic membership. They would ban domestic flights altogether, limit private air journeys to one every three years, and restrict airports to just a handful.

It is only a matter of time before they become formal political policies somewhere and the House of Cards will start to collapse.

So in the immediate future, airports will need to continue thinking very carefully about how they integrate the demands of climate change and ESG in their own planning.

Airports need to future-proof their facilities, if they aren't doing that already

Airports will need to 'future-proof' their facilities against the climate risks, whatever they ultimately amount to. It is at their peril if they do not.

They will have to ensure that any new construction is to the standard of LEED (Leadership in Energy and Environmental Design), the world's most widely used green building rating system, and others like it. They will become the benchmark for airport building standards, not an option.

Terminal design will be measured in terms of energy requirements (the need to chill the air, or warm it up - rapidly). Spare land will be expected to be used to generate energy - for example, by way of solar panel fields (which can cause operational problems if deployed incorrectly).

The simple fact remains that all airports have to start building such practical measures into their planning immediately if they have not already done so.

Rail travel should be collaborative, not a threat

Another politically inspired agenda is making its presence felt, especially in Europe - namely, the demand for rail travel to be an enforced alternative to air travel.

This has come to a head recently in the Netherlands, and was investigated in the CAPA - Centre for Aviation report: Air vs. rail: Netherlands' institute proposes replacing air with rail to 13 cities out of Amsterdam.

There is little that airports can do other than (1) make their case - there has to be an alternative for when the railways cannot operate, or when workers are on strike, as they often are in some countries and, (2) try to ensure that their airports are on the rail lines, especially the high-speed ones. That way they are part of the system rather than an option, and these arrangements have worked very well for airports like Frankfurt in Germany and Lyon in France.

And in Germany it has helped highlight the fact that air travel can be more punctual than rail travel (the high speed ICE trains there having a very poor punctuality record this year).

Further concentration in the airport retail market might be anticipated in 2024 following the 'business combination' between Dufry and Autogrill this year. That deal was covered in the CAPA - Centre for Aviation report: Airport retail - Dufry completes business combination with Autogrill; airport retail sector reviving

AI implementation has to be controlled

Artificial Intelligence (AI), machine learning, and how it is applied in the airport business, will be of critical importance in 2024, a year in which that subject will come to a head.

Either very rapid advances will be made to the appreciative benefit of everyone, or something will go disastrously wrong, as even the architects of AI, Elon Musk and all, admit is more than possible.

The airports business will become very unpopular very quickly if anything goes wrong with it that can be traceable directly to AI.

(Aircraft) size matters

More mundanely, aircraft size and how to cater for it will have to be taken into account more than ever in planning in what is a rapidly changing scenario, along with the airfield demands of other flying vehicles such as air taxis, a realistic commercial proposition for 2024, other eVTOL vehicles, and package-carrying drones.

The size of the aircraft that airports have to cater to inevitably impacts on terminal design.

During the latter part of the past century aircraft got bigger, culminating initially in the Boeing 747 and then the A380. More recently the average size has shrunk, partly because the cost of operating four-engined aircraft was too high, and partly because demand shifted from big hub airports towards smaller ones servicing thinner point-to-point routes.

The A380 was written off even before the COVID pandemic, but it has made a comeback, at least in the short term, along with the hub airports, which have recovered faster than the sub-primary and secondary level ones.

Going supersonic again?

Supersonic travel could make a return, along with the advent of space flights out of commercial airports, although in either case it probably will not be in 2024.

The re-emergence of supersonic aircraft would create their own specific demands, not only in aircraft and passenger handling, but also in noise control, and airports need to get ahead on placating the public (because objectors and pressure groups are already forewarned and forearmed).

Airports should get ahead of the game on relaxed security requirements

Again more mundanely, how baggage is handled needs to be appraised in respect of changing government demands.

The technology now exists to avoid the need for the 100 millilitre liquids-and-gels checks that have existed for almost two decades - much to the annoyance of the travelling public. Some airports, notably small ones, have already introduced the new technology, while larger ones have played out that introduction as long as they can for their own reasons.

That does not make for good public relations.

Airport collaboration increasing across multiple fields

One thing that is likely to come out of all this is greater co-operation and ideas swapping between airports.

As this report is written it was revealed that Incheon International Airport Corporation had signed an MoU with Amsterdam Schiphol Airport to collaborate on measures to develop and implement advanced technologies at Schiphol and Seoul Incheon International airports in 2024. The two parties will explore new applications for technologies, including artificial intelligence, Internet of Things, robotics, biometrics and autonomous vehicles at the airports.

There have been several other such co-operations agreed in the past, and there will certainly be more.

It shouldn't be the cough that carries you off

But if there is one thing that airports absolutely must do it is to ensure that if there is any repeat of the COVID-19 pandemic, whether it is that virus or another one, they are absolutely prepared for whatever travel is permitted, be it by national governments or the World Health Organization, which seeks to take over (in 2024) global jurisdiction of disease control measures.

CAPA - Centre for Aviation has highlighted several airports that have built into new terminal design the maximum disease control measures that are available, a couple of them in the US, and Clark International in the Philippines. They should become the appropriate industry benchmarks in this respect, and taken onboard by others as a matter of urgency.