Moody’s expects a slowdown in traffic growth at UK airports as airlines move capacity elsewhere
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Moody’s expects a slowdown in traffic growth at UK airports as airlines move capacity elsewhere
29 November 2017
By Rebecca Smith (City AM)
The report said significant event risks around Brexit could slow the pace of passenger growth at UK airports
While Europe’s airport sector as a whole is poised to reap the rewards from robust traffic growth over the next year and a half, the UK faces the prospect of a slowdown as airlines shift capacity elsewhere, according to a new report from Moody’s.
The influential ratings agency said the 2018 outlook for European airports overall was positive, as traffic growth looks set to remain strong, though it did forecast a slowdown at UK airports, reflecting “the UK’s more subdued macro prospects”.
Moody’s also flagged the decision by some airlines to move some capacity away from the UK to “more profitable markets, such as Germany”, resulting in lower capacity rises than those reported in recent years.
Continental airports are expected to report traffic growth in a range of five to seven per cent, while the UK is expected to post three to six per cent growth.
Over the first nine months of 2017, the 10 largest European airports reported average passenger growth of 4.9 per cent, and Heathrow remains Europe’s busiest, despite its capacity crunch. It reported a three per cent rise in passengers over that period, boosted by larger and fuller aircraft.
“An improved economic environment, particularly in continental Europe, combined with continued low fuel costs, relatively contained air fare inflation, and growing airline capacity, will continue to stimulate demand for air travel and support the European airport sector’s positive outlook,” said Xavier Lopez del Rincon, vice president – senior credit officer at Moody’s.
The outcome of Brexit negotiations also weighed on Moody’s consideration, saying Britain’s departure from the European Union brings in further downside risks for UK airports.
The report said:
While Moody’s base case is for new aviation agreements to be put in place post-Brexit, in the most extreme case, if no new aviation agreements are reached, UK airports would be exposed to a sudden loss of air traffic rights covering around 80 per cent of current passenger traffic volumes.
The UK’s aviation industry has been vocal about the need to secure certainty over future flying rights, with the outgoing boss of London City Airport saying last month he was “incredibly worried” about the “level of complacency that appears to be drifting into our thinking”.
“I see no clear path, all I see is a huge degree of uncertainty facing the industry, and I think it’s bad for the UK, and it’s bad for the EU,” Declan Collier said.
The government meanwhile, has said it is committed to getting the right deal for Britain, calling aviation “absolutely crucial” to the UK’s economy.
http://www.cityam.com/276652/moodys-expects-slowdown-traffic-growth-uk-airports-airlines
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The Moody’s report
Announcement:
Moody’s: Strong passenger growth supports European airport sector’s positive outlook into 2018
Robust traffic growth will underpin the positive outlook on Europe’s airport sector over the next 12-18 months, though significant event risks around Brexit could slow the pace of growth in passenger numbers in the UK, says Moody’s Investors Service in a report published today.
Moody’s report, “Airports — Europe: 2018 outlook positive as traffic growth remains strong, but with downside risks,” is available on www.moodys.com. Moody’s subscribers can access this report via the link provided at the end of this press release. The rating agency’s report is an update to the markets and does not constitute a rating action.
This is the first time Moody’s has assigned a separate outlook to the European airport sector. Previously, the rating agency had assigned an outlook to the overall European transport infrastructure sector, comprising the toll road, airport and sea port sectors.
“An improved economic environment, particularly in continental Europe, combined with continued low fuel costs, relatively contained airfare inflation and growing airline capacity, will continue to stimulate demand for air travel and support the European airport sector’s positive outlook,” says Xavier Lopez del Rincon, Vice President — Senior Credit Officer at Moody’s.
Moody’s estimates that traffic growth will remain strong in 2018, in the range of 5%-7% for continental airports, but expects a slowdown at UK airports, with growth in the range of 3%-6%. This reflects the UK’s more subdued macro prospects, as well as the decision by some airlines to move some capacity away from the UK to more profitable markets, such as Germany, resulting in lower capacity increases than those experienced in recent years.
Brexit introduces further downside risks for UK airports. While Moody’s base case is for new aviation agreements to be put in place post-Brexit, in the most extreme case, if no new aviation agreements are reached, UK airports would be exposed to a sudden loss of air traffic rights covering around 80% of current passenger traffic volumes.
Terrorism and geopolitical risks continue to introduce volatility and drive geographical divergence in traffic performance. Barring further shocks, Moody’s expects that leisure travel will be better distributed among Mediterranean destinations from 2018 onwards, as passenger traffic at non-EU Mediterranean countries, such as Turkey, and North Africa continues to recover.
While Manchester, Schiphol and Stansted airports will ramp up large expansionary projects in 2018 and average capital expenditure levels will rise at Birmingham, Brussels and Copenhagen airports, Moody’s does not foresee increased investment levels as having a significant impact on issuers’ financial profiles. This is because projects have been designed so that they can be deferred or postponed to match trading conditions, they will in most cases boost tariffs, and they are being financed at historically low rates.
Airline industry consolidation and increasing oil prices present risks to traffic growth in the medium term. As the airline industry consolidates, stronger airlines and higher oil prices could lead to higher fares and rationalisation of capacity.
Subscribers (only) can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1100063
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