Listed Airports during Covid-19: an AviaSolutions insight

Most sector observers and investors will be familiar with the operating model at the larger airports, which in more normal circumstances feature annual incremental traffic growth with revenues closely linked to volume, and operating costs generally more fixed. EBITDA and EBITDA margin typically improve accordingly.

However, in these far from normal times caused by the Covid-19 pandemic the typical relationships between an airport’s volume, revenue and operating costs are fractured, certainly in the short-term.

In Q2 2020, airport passenger volumes dropped more sharply than at any time in living memory. The outlook for the return of air traffic remains very uncertain with business and leisure air travel still highly vulnerable to national and local rates of Covid-19 infection.

Aeronautical revenue at the larger airports is typically subject to economic regulation (e.g. price caps) which are linked to capital investment plans and volume projections. In the near-term this relationship is also broken, with most regulators deferring regulatory pricing resets until some degree of market stability returns.

Equally challenging is how airports can manage their operating cost base in the short term given the precipitous fall in traffic and the absence of visibility as to how the aviation market will recover in the coming months and years. There are also significant one-off cash costs associated with re-structuring an airport business at a time when airports are seeking to preserve liquidity.

A number of listed European airport groups have published 2020 half year results in the past month. Whilst at first glance the half-year passenger volume and EBITDA results do not appear too alarming, the quarter-on-quarter results illustrate just how much of a challenge these