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Covid-19 recovery and longer-term financial impacts on airports

Author: Eleni Kaloyirou, Chief Executive Officer, Hermes Airports Ltd

Published: 01 Sep 2021

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August 2021 proved to be the best month yet since the start of the Covid-19 pandemic in March 2020.

At our two airports in Cyprus - Larnaca and Paphos, our traffic exceeded 865k passengers which is around 58% of August 2019 traffic. Other airports around Europe are observing similar trends, indicating that passenger traffic is finally picking up with corresponding improvements in connectivity. It seems that we have embarked on the recovery from the pandemic, although we know that the road to full recovery (by which I mean a return to 2019 passenger levels to begin with), will be both long and uneven. Estimates of when a full recovery is likely to be achieved still centre around 2024-2025, and it seems that domestic, leisure and intra-European travel are leading the recovery, whilst business and intercontinental travel are lagging behind.

Immediate priorities

We are of course very happy to see that the recovery has started, even though uncertainty remains as to how traffic will develop, and we have to be prepared that some backtracking may in fact be experienced. Our immediate priority has been to deal with the operational challenges created by the pandemic and the resurgence of traffic. We have adopted a travel related health protocol to ensure we protect the health and safety of our passengers and staff and we have to continually coordinate with all airport stakeholders in order to stay on top of the changing travel regulations, as country categorisations change, so that passengers can go through the airports and all related services without delay and inconvenience. We have also taken steps to ensure that passengers have a good and enjoyable experience going through the airports, having the ability to shop and dine as they used to do before the pandemic, despite the measures and processes put in place for their protection.
Hermes Airport Seats
Source: Hermes Airports

Longer-term impacts

At the same time, we have to reflect on the longer-term impacts of Covid-19 on airports which are both structural and lasting. With aviation being one of the worst affected sectors, it should come as no surprise to anyone to hear that airports are facing significant financial stress as a result of the pandemic. Airports have seen their revenues collapse in the past eighteen months, whilst the fixed nature of their costs has not enabled them to cover this drop in revenue despite rigorous cost cutting. This has resulted in very significant losses for airports which, coupled with limited support from states, has led to the need to raise debt to finance current operations. According to Olivier Jankovec, Director General of ACI EUROPE:

“Europe’s airports have already taken on more than €20 billion in additional debt last year – and for most airports, this debt is what is financing today’s operations, effectively allowing them just to keep going.”

Although the recovery has started a number of factors like the need for physical distancing, additional health measures introduced, the fact that traffic is concentrated in peak periods etc, mean that airports have to scale up capacity and resources, which result in escalating costs whilst revenues remain significantly below pre-pandemic levels. Olivier Jankovec’s comment summarises the position very well:

“Seeing passenger traffic beginning to recover is what all airports have been waiting for. However, make no mistake, this will not instantly put them back on a sound financial standing - far from it. If anything, the recovery for airports this Summer will be cash-intensive and revenue-weak.”

A cash intensive and revenue weak recovery creates lasting financial weakness for airports, at a time when the debt burden accumulated is already significant and may rise further. It is expected that airports will be unable to generate sufficient profits to meet capital expenditure and capital costs from net income for many years to come, and this in turn will result in an investment crunch - at a time when airports had in mind an ambitious decarbonisation and digitalisation investment programme as well as plans to increase capacity and connectivity.

ACI Graph

It is important to restore airports’ financial sustainability

This is cause for concern as airports are critical infrastructure that will play a crucial role in enabling social and economic connectivity and recovery in the post-pandemic period. It is important that the unique challenges created by the pandemic to the airport industry are recognised and that all stakeholders, including Governments and Regulators, come together and work with the industry to help it restore its financial sustainability while passenger numbers return gradually between now and 2024-2025.This in turn will allow airports to continue playing their catalytic role in travel, tourism and economic expansion, helping underpin Europe’s economies and deliver on their existing environmental targets.

1ACI Europe has commissioned a report by AlixPartners UK LLP titled: ‘Turnaround Time: Airport Financial Recovery and Restart Following Covid-19’ which was released on 17 June 2021. This article draws on the report’s findings. The report explores in depth the issues dealt with here and proposes ways to address them.

*The views expressed are the author’s and not ICAEW