Moody's outlook for Australian airports turns negative amid drastic measures by airlines
Moody's Investors Service says in a new report that Australian airports' revenues will decline materially in 2020 due to coronavirus-related disruptions, namely the drastic government-led containment measures that have resulted in airlines severely cutting their capacities. Moody's analysis covers Sydney, Melbourne, Brisbane, Perth and Adelaide airports.
- Passenger volumes will decline sharply in 2020, driving a material fall in revenues
- Airports are aggressively implementing countermeasures to protect their credit profiles
"We expect air travel in Australia will drop materially in 2020 compared to last year, reflecting the near-total cessation of flights during parts of this year," says Nicholas Chapman, a Moody's Vice President and Senior Analyst.
"This in turn will have a knock-on effect on airports' revenues, given their heavy reliance on passenger volumes to generate revenue, for example through aeronautical (i.e. landing) charges, ground transport and parking, and rentals from retail operators that serve passengers," adds Chapman.
That said, Moody's expects a gradual recovery in revenues starting in the third quarter of 2020, driven by supportive fiscal and monetary policy measures. But Moody's is cautious about the pace of recovery, as governments may retain travel restrictions and consumers may be wary of, or not have the financial capacity to return to pre-coronavirus levels of travel.
In response to declining earnings, airports are implementing strong countermeasures - such as lowering operating costs, deferring capital spending and reducing or suspending dividends - to protect their balance sheets and credit profiles.
But airports that persist with large debt-funded investments - particularly Melbourne Airport - will likely suffer the greatest weakening in their credit metrics. Melbourne Airport's large investment program commenced before the onset of the coronavirus, and has already resulted in its projected metrics being close to the rating tolerance level.
On the other hand, Perth and Brisbane airports have more flexibility to defer their large capital expenditure programs as these projects have not started yet. And Sydney Airport's investment spending is likely to be lower than previous expectations of between AUD350 million and AUD450 million in 2020.
Also, Australian airports generally have adequate liquidity and are owned by well-funded and well-aligned investors with long-term investment horizons.