The world's airports under pressure as fuel soars, economies slow

The international airport sector is facing an increasingly challenging outlook, as high fuel prices buffet the airline industry, prompting airlines to cutback underperforming routes and capacity growth plans.

The International Air Transport Association (IATA) is holding its Annual General Meeting this week, which will address the deepening crisis affecting the sector. In the face of over USD2 billion in losses this year, airlines are expected to galvanise behind calls for further cost restraint by the airport and ATM sectors in the area of charges.

But airports, in the face of slowing traffic, are expected to stand their ground, particularly on the contentious issue of charges. Airports Council International Director General, Angela Gittens, stated in a newsletter to members this week, “you only have to watch the news to contemplate how cyclical our industry can be”. She added, with the global credit crunch, high oil prices and news about the world’s biggest carrier American Airlines cutting back on routes, “never has there been a more important time for our industry to have a strong association to advocate on our behalf”.

IATA reports further slowing of traffic growth in most major regions in Apr-08 (unadjusted for the early Easter this year):

  • Europe recorded 1.6% year-on-year growth, down from the 3.7% recorded in March;
  • North American carriers recorded 3.8% demand growth in international passenger traffic as capacity continued to shift to international markets. This was outstripped by capacity expansion of 6.2%. Moreover it is down from the 6.3% year-on-year growth recorded in March;
  • Asia Pacific carriers saw 2.6% growth in demand, down from 4.3% in March as a result of the slowing Japanese economy. Particularly impacted were long-haul routes to North America and Europe;
  • Middle Eastern airlines saw an 11% increase in traffic due to soaring oil revenues, developing tourism and additional airport and airline capacity;
  • Latin American airlines saw a 4% increase. This is down from the 19.7% recorded in March as the impact of the significant industry restructuring in 2007 wears off;
  • Africa continued its free-fall with a 5.6% contraction in traffic and an 8.7% reduction in capacity".

Passenger traffic (RPK) growth: May-07 to Apr-08

Source: Centre for Asia Pacific Aviation & IATA

Standard and Poor's Ratings Services (S&P) stated it expects the robust pace of airport traffic growth achieved in the past few years to slow in the next 12 months, as some consumers rethink air travel, due to the weaker economic conditions and higher fares.

However, the ratings agency stated the credit quality for the majority of its rated international airports (excluding US airports), which are clustered around the 'A' and 'BBB' investment-grade ratings, will remain relatively stable for the remainder of 2008.

S&P stated its rated airports have a track record of resilience to adverse industry developments, and most of these hubs have strong liquidity and sound financial policies.

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