Airports face ‘difficult climb’

Australia and New Zealand’s airport assets face a cash squeeze over the next year and a “slow and difficult climb” out of the deep hole.

The new report warned the outlook for the sector was negative as airport traffic recovery would hinge on domestic policies and travel, with international traffic key for earnings quality. Picture: Getty Images

Australia and New Zealand’s airport assets face a cash squeeze over the next year and a “slow and difficult climb” out of the deep hole created by the COVID-19 pandemic with a rebound in tourism and traffic flows not likely until 2022, says a report from ratings agency S&P Global Ratings.

The new report warned the outlook for the sector was negative as airport traffic recovery would hinge on domestic policies and travel, with international traffic key for earnings quality.

In the meantime there will be a cashflow squeeze, albeit with sufficient liquidity for the next 12 months, as a prolonged recovery looms given a second wave of infections, government actions, consumer behaviour, and the weak economic outlook.

“Airports in Australia and New Zealand are preparing for a slow and difficult climb out of the COVID-19 fallout,” S&P Global Ratings credit analyst Parvathy Iyer said.

The sector has been crunched by the 90 per cent-plus reduction in airline capacity and border lockdowns which have almost completely shut down airline travel.

“We estimate that a material rebound in traffic and earnings is unlikely to occur before 2022, with limited visibility and confidence in the recovery path before the end of 2020,’’ the S&P analyst said.

Australia’s airports are a large driver of economic activity. The top 10 airports in Australia have an enterprise value of more than $60bn with the nation’s superannuation funds providing almost half the equity of our private airports.

Ms Iyer said domestic traffic would lead the recovery.

“For high-value international traffic, a rebound is hard to predict unless COVID-19 is under control in major countries. While New Zealand’s domestic travel is steadily ramping up, Australia is facing some delays following a recent surge in infection rates, mainly in Victoria.

“All Australian and New Zealand airports we rate will take a big hit to their cashflows in the next 12 months.

“Nevertheless, they have taken meaningful actions to ensure adequate liquidity to support their balance sheets.”

In June S&P lowered the ratings (by one notch) on three of the eight rated airports in Australia and New Zealand.