Columbia Threadneedle: Chocks away! Airport passenger numbers – and financial metrics – recover

Columbia Threadneedle: Chocks away! Airport passenger numbers – and financial metrics – recover
Fixed Income

Increased numbers of fliers and supportive concession frameworks mean the industry retains a strong and steady credit trajectory.

28.03.2024 | 06:32 Uhr

Packing your bags and flying off to sunnier climes this Easter break? You’ll be joining the throng of travellers that contributed to airport passenger numbers exceeding pre-pandemic levels in the first months of 2024.

With the movement of people grinding to a halt during the Covid pandemic, it was an especially difficult period for airport operators. But financial metrics have recovered relatively swiftly from the tremendous drop in traffic.

This owes largely to strong operating models. Volume risk-sharing mechanisms provided support, while some tariffs shifted to annual resets and capex requirements were significantly reduced. This allowed for greater flexibility around uncertain traffic levels and hence cash preservation. Debt holders and shareholders also provided support through covenant waivers, capital injections and dividend pauses.

The pandemic also proved a useful litmus test as to how concession frameworks truly support credit quality in stressed environments. These vary widely across Europe. At the lightest-touch end of the spectrum, financial terms are directly negotiated with airlines and the airport shoulders all volume risk. This tends to be coupled with minimal oversight from a competition authority and private ownership.

At the highest-touch end, tariffs are dictated by a regulatory body which also requires specific levels of capex, typically with a degree of volume risk sharing.

Norwegian airport operator, Avinor, goes a step further. With full government ownership, airports in the country are clubbed together and regarded as a single unit, run to meet Norway’s connectivity needs and for greater sustainability and efficiency. This means profitable Norwegian airports – Oslo, for example – subsidise the operations of those that are loss making to ensure the populous remains connected across the country.

What does this mean for credit?

Airport operators received solid support through the pandemic. And, as mentioned, passenger numbers are now also recovering: through 2023 global traffic was only 6% below 2019 RPK (revenue passenger kilometre) levels. Europe had almost recovered to 2019 levels, only 5% below at FY23, with international recovery lagging domestic owing to China’s late reopening from Covid.1 Already in the first months of 2024 Europe has surpassed 2019 levels, with traffic up +1.5% in January (Figure 1).

Figure 1 European air passenger traffic versus 2019 levels (RPKs)


European passenger traffic growth is likely to continue – some European airports expect to exceed 2019 levels in 2024, others expect to take a couple more years to reach pre-pandemic traffic levels, but expect positive passenger growth nonetheless. In general, however, this is unlikely to lead to notable improvement in credit quality.

The benefit to revenue and profit from increased passenger numbers is balanced by higher cash outflows: capex levels are normalising and shareholder returns are being reinstated as the need for high conservativism has faded.

The strength of concession frameworks, and the fact that we view the credit trajectory as strong and steady, coupled with the typically long-dated nature of infrastructure bonds, makes the European airport sector attractive for investors such as insurers and pension funds looking for relatively stable, long-term positions.

And in a few cases we do see scope for credit improvement. Benefit from lagged tariff improvements or small revisions in regulatory frameworks should support further deleveraging at specific airports, including at Avinor and Schiphol, which are also at the higher-regulated, state-owned end of the spectrum, where we view credit quality as strongest.

1 IATA, January 2024

Important Information

For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing communication. The mention of stocks is not a recommendation to deal.

This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.

In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act and relies on Class Order 03/1102 in marketing and providing financial services to Australian wholesale clients as defined in Section 761G of the Corporations Act 2001. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.

In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.

In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.

In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.

In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.

In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.

In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland.

In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies.

Diesen Beitrag teilen: