Analysis Reports

Half-year airport financial reports for 2020 are coming thick and fast now. At the same time in 2019 operators would not have believed that the equivalent period this year would reveal revenue losses of 50% or more, EBITDA down by 95%, and net profits destroyed.

Fraport, which apart from its Frankfurt hub operates airports or contracts for specific segments such as retail operations across the world, is no different.

But while those international operations have largely dragged down the core German activity with the exception of the Lima airport, Fraport, like other operators, has reported that retail operations have not been as badly impacted as other revenue streams.

Construction will be halted on all projects apart from Terminal 3 at Frankfurt, while up to 4,000 jobs will be shed permanently.

Brazil’s largest airline GOL continues to add capacity back to its network and is anticipating a return to 80% of all frequencies and markets by the end of 2020, as the airline expects some corporate travel will resume during the Sep-2020 to Oct-2020 period. 

The airline believes larger corporate clients could begin travelling again as states and localities in Brazil begin to open up. That should allow GOL to widen its booking curve, which for now remains short, at broadly 20 days. 

Even as Brazil’s COVID-19 cases continue to climb, GOL has concluded that demand has been steadily recovering, and the airline’s sales and traffic continue to move off the lows that the airline dropped to in Apr-2020.

First half 2020 financial results are being published by airport operators, including for Groupe ADP, the Paris airports operator with additional interests in West Asia, the Middle East and elsewhere.

Those results have inevitably been affected adversely by the pandemic, but among the minus signs there is some evidence that some business segments have been less severely impacted than others.

Among them are commercial revenues from retail concessions, which at some airports in Europe were quick to get going again. Data released by the Spanish operator AENA also adds weight to that theory. In AENA’s case some retail activities actually gained in revenues for the operator in 1H2020.

The COVID-19 pandemic continues to wreak havoc on airlines worldwide, but Air Canada faces an added layer of uncertainty as Canada remains largely closed off for travel, with no target date for the lifting of restrictions. 

Air Canada continues to cut costs, build liquidity and rightsize its operations, which includes its ongoing efforts to retire 79 aircraft from its fleet and shrink its network footprint. 

There is also little doubt that Air Canada will need to adjust its aircraft order book as the company’s planned CAD3 billion capex for 2021 is not conducive to operating during a pandemic. As uncertainty over when Canada will ease restrictions remains firmly in place, the airline is already warning that it could possibly cancel orders for Airbus A220s and Boeing jets. 

Having been criticised heavily by President Trump as being of ‘Third World’ standard, New York’s LaGuardia Airport is in the midst of a multi-billion dollar public-private restoration project, effectively a new airport, while the other two main airports operated by the Port Authority of New York and New Jersey (PANYNJ) are receiving their own makeovers – again, with public-private schemes involved.

The Port Authority has issued a plea to the federal government to provide direct assistance towards construction costs as the pandemic continues to rage, requesting that the U.S. federal government provide the authority with USD3 billion towards capital construction projects.

PANYNJ added that without financial assistance it may be forced to reconsider a 10-year capital plan that includes redevelopment of New York LaGuardia Airport, replacement of New York Newark Liberty International Airport terminal 1, and a redevelopment of New York John F Kennedy International Airport.

Essentially, PANYNJ is looking much further ahead here and asking the federal government to pay for an existing master plan well into the future as it becomes clearer that ‘normality’ may not return until 2024 or 2025.

Can such a request be justified under these circumstances, and what other scenarios might play out?

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Hawaiian Airlines has had the majority of its operations shuttered since late Mar-2020, since the COVID-19 pandemic forced Hawaii to institute 14-day quarantines for anyone entering the state. The airline’s long haul routes have also been idle due to travel restrictions. 

During 3Q2020 Hawaiian plans to operate just 15% of the capacity it deployed a year ago, and the company’s management has declared that the airline will be 15% to 25% smaller in the US summer of 2021 compared with the same period of 2019. 

As it works to rightsize, Hawaiian believes it has sufficient liquidity to weather the COVID-19 crisis, and the airline is being realistic about achieving positive net cash generation. 

The Mexican ULCC Volaris is taking advantage of what appears to be a decent recovery in Mexico’s domestic market. By YE2020 the airline expects demand within the country to reach 65% to 75% of the levels a year ago in 2019, led by the visiting friends and relatives (VFR) segment. 

VFR and leisure passengers make up the majority of Volaris’ traffic, which positions the airline favourably as the market continues to recover. At the same time, competition seems less intense on domestic routes. 

Before the pandemic Volaris was Mexico’s largest domestic airline measured by passengers carried, and the company continues to be poised to remain the dominant operator within Mexico. Volaris could also take opportunities to expand its presence in Mexico City Juarez International Airport as competitors pull back from the airport. 

Across the globe new airport projects are being cancelled and additional infrastructure at large airports is being reviewed – the latest examples being at Singapore Changi and Paris Charles de Gaulle airports.

But the position in Lisbon – where the creaking Humberto Delgado airport would probably have seized up altogether now were it not for the pandemic – is becoming critical.

A new airport for Lisbon has been planned for many decades and Montijo was eventually selected. Montijo Air Base is located in the Montijo Municipality of the Lisbon metropolitan area of Portugal and it supports air elements of the Portuguese Navy.

But – that still has not happened, opposition has continued to mount, and now the government will make another attempt to railroad it through by changing the law.

The rebound in domestic travel in Japan has been one of the most impressive in the Asia-Pacific region. However, a resurgence of COVID-19 cases in the country is threatening to put the brakes on the pace of recovery.

Japanese domestic capacity has bounced back quickly towards normal pre-COVID levels. Although domestic travel was not shut down to the same degree as in other countries, it was still cut back dramatically by government movement restrictions.

The turning point for the Japan market was when the government removed the country’s state of emergency and eased domestic travel restrictions on 19-Jun-2020. This spurred carriers to begin ramping up services again.

But now a second wave of infections – particularly in the key Tokyo market – is causing concerns. The timing is far from ideal, as airlines are looking for Aug-2020 holiday periods to boost demand further. The airlines have decided to ease back on their capacity growth plans for Aug-2020 as bookings dip.

The government has been taking steps to try to keep the domestic travel momentum going with a massive travel promotion, but it has also been forced to dial this effort back somewhat.