Airports may have it worse than airlines with coronavirus

- A Monitor Desk Report 14 May, 2020 | 693 Views|-+
Dhaka: The coronavirus pandemic is leaving a tremendous impact on the travel industry. With a vast majority of flights grounded to contain the spread of the virus, major airports like Singapore and Dubai are seeing passenger volumes plunge.

Airports continue to incur fixed costs for maintaining the infrastructure. Their burden is even greater, experts state, because partners such as retail outlets and airlines have been given breaks in terms of rentals and reduced parking and other fees, respectively.

Though governments might share the costs burden of airports in the short term, it remains to be seen how long they will be able to bear such a responsibility.

It is anticipated that, going ahead, the future will be very challenging for airport hubs like Singapore and Dubai because the air travel industry may take a long time to come back to the passenger volumes it enjoyed before the emergence of the outbreak.

There is a distinct possibility passenger volumes may never return to pre COVID-19 levels. Even the financially strong Changi Airport, with share capital and reserves at SD 3.54 billion and retained profits of SD 4.29 billion in the last financial year, is treading carefully.

Changi Airport announced on May 12 that it will suspend Terminal 4 operations until a sufficient number of flights resume at the terminal. It had earlier announced in April a suspension of Terminal 2 operations for 18 months.

However, not any estimate imply that either leisure or business travel will come down to zero. Nevertheless, even a 10 per cent decline in demand will inflict a lot of pain on businesses such as airlines and airport operations, because of their high fixed costs.

Air hubs like Singapore, which depend on transit traffic are even more vulnerable.

If travellers are concerned about catching infections at the airport, they will exhibit a strong preference for direct flights compared to those involving a transit, thus affecting passenger volumes at hubs like Singapore or Dubai.

Meanwhile, airports will suffer from reduced passenger volumes even if airlines deal with the new environment through new strategies – impacting not only landing, parking and other charges they would normally charge airlines, but also airport retail and food and beverage revenue streams.

There are two caveats to the above analysis.

The first relates to how long people will remember the COVID-19 crisis and its health implications. If public memory is short, air travel volumes might bounce back quickly.

Secondly, coronavirus-related regulations, for instance, keeping middle seat empty, may not be as stringent as is expected at this point in time.

Still, the future of airports, especially hubs such as Singapore, will be incredibly challenged.

Experts are recommending hub airports like Singapore and Dubai to put expansion plans on hold. They are also suggesting investing in only those initiatives that lead to productivity improvements and staying away from making airports more luxurious — projects which airports like Dubai and Doha have been undertaking.

Finally, experts also suggested to avoid debt financing and conserving capital for rainy days or for a time when the uncertainty about the future of air travel is resolved.

Other than financially strong airports like Changi, other airports use debt financing extensively.

Airports frequently turn to the capital markets to finance long-term construction projects. Bond proceeds are the largest sources of funds for airport capital needs, accounting for approximately 54 per cent of total funds historically, according to the International Civil Aviation Organisation.

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