Fitch: Smaller Airports More Affected by Airline Failure

Eleanor Steed
By Eleanor Steed May 29, 2018 10:22

Fitch: Smaller Airports More Affected by Airline Failure

Secondary hubs and airports in small markets are more affected by an airline failure than their major counterparts. This is just one of the disparate effects airline failures have on airports around the world, according to Fitch Ratings in a new report.

A recent Fitch analysis shows that major airports recover quite well over the years when an airline fails. Passenger traffic at major airports has declined below 10% one to two years after the failure and often recovers completely after that. The effects of an airline failure are felt more acutely, however, in secondary hubs and airports in small markets, according to Director George Abbatt. ‘Smaller airports tend to over-rely on one airline so naturally they suffer if that airline fails,’ said Abbatt. ‘While local demand traffic will likely recover over time, smaller airports can lose connecting traffic permanently.’

A study by Fitch of 20 historical airline failure events for select airports throughout the world showed the average decline in passenger traffic was 9.3%. Eight airports saw passenger traffic fall over 10% and three airports saw passenger declines of greater than 20%. The influence on smaller airports is even more evident in average peak-to-trough traffic, which fell 17% overall but only 10.5% after removing secondary hubs that never fully recovered.

Government support for carriers also varies by country. As seen with Alitalia, which remains in ‘special administration’, government support of non-viable airlines is unsustainable. Conversely, state support can also help in restructuring an airline and therefore indirectly benefit the airport, as in the case of Haneda where state support helped Japan Airlines (JAL) to avert collapse.

The varying effects of an airline failure are also felt within airport bonds themselves with some more vulnerable than others. ‘Debt secured by general airport revenues is likely to best withstand an airline failure through protections afforded by more flexible pricing frameworks’ said Senior Director Seth Lehman. ‘Whereas special facility and passenger facility charges have more limited revenue pledges, meaning they can be more exposed to airline failure.’

Eleanor Steed
By Eleanor Steed May 29, 2018 10:22