Optimism is flooding back into the sector as the world's airports saw passenger numbers grow to within touching distance of 2000 levels
After three years of gloom, optimism is once more on the rise among the world's airports as the passengers finally return. Preliminary 2003 figures from the Airports Council International (ACI) show that, even despite the catastrophic impact of SARS a year ago, passenger numbers rose by 1.6% last year - the first sign of growth since 2000.
As ACI director general Robert Aaronson comments, despite the tough market conditions, his member airports finished the year very strong. "We believe the industry is poised for a robust recovery in 2004," he adds. The first three months of the year support such optimism, with traffic up globally by 6% in the quarter. In March alone, international traffic grew an impressive 12.4%. "It finally looks as if we really are turning the corner," says Paul Behnke, director economics at ACI.
The rising tide of passenger traffic is clearly visible in the latest OAG schedule data, which accompanies this month's Top 100 Airport passenger ranking. That shows a 9% increase in the seats flown for May 2004 compared with a year ago, even allowing for the impact of SARS.
Despite the current optimism, the numbers were not quite back to the peak last year. The impact of SARS, war in Iraq and economic uncertainty left the 2003 passenger numbers below their pre-crisis levels of 2000. A rough calculation based on ACI's annual growth estimates for the past few years suggests that passenger and cargo volumes were still trailing the peak by 1-2% in 2003.
On this analysis, the European and Latin America markets already look close to regaining the peak, with only North America still struggling to recover to the traffic levels of 2000.
The Middle East region has seen the strongest sustained growth over the past three years, driven by the success of Emirates and its Dubai hub. Asia-Pacific has not been far behind, despite the impact of SARS. The region's airports admittedly ended 2003 showing a 1% fall in traffic for the full year, but a strong rally in the second half came close to making up the shortfall and around half of the region's major airports still registered growth.
Asia-Pacific laggards
However, for the first time in recent memory some big Asian names join the list of "laggards" - those airports showing the greatest annual traffic declines. Hong Kong, Singapore, Taipei, Beijing and Osaka all suffered double-digit falls in passenger numbers, with other cities such as Tokyo, Bangkok, Seoul and Toronto also suffering from the impact of SARS.
At the same time the likes of Kuala Lumpur and Jakarta bucked the trend to lead the growth league. Malaysia's low-cost phenomenon AirAsia is mainly responsible for growing the market in Kuala Lumpur, while Indonesia's budget carrier Lion Air can claim some of the credit in Jakarta. But Lion Air is not alone. Indonesia's domestic travel market is booming and over a dozen new airlines have started up in recent years.
With SARS hopefully well behind them, the region's airports are confident about their prospects. "We are very bullish right now," says Larry Berg, chairman of ACI Pacific, which extends from South-East Asia to the US West Coast, and chief executive of Vancouver International Airport. "Asia-Pacific airports have recovered from the impact of SARS, all of that is behind us, and coupled with the region containing the fastest-growing aviation market in the world in terms of China, we are back on the growth path," he says.
Of China's larger airports, only the southern airport of Shenzhen sustained a rapid hike in traffic. Not only is its home carrier Shenzhen Airlines growing quickly, but the airport has now been opened to international carriers, with Singapore Airlines becoming the first to start services earlier this year.
Of China's big three cities, it was Shanghai that fared best compared with the slide in passenger numbers at Beijing and Guangzhou. Although the new Shanghai Pu Dong airport saw 34% more traffic in 2003, the old Hongqiao airport registered a 29% drop as carriers continue to move service to the new facility. For the city as a whole that left passenger volumes down by around 0.6% last year. Both airports were given a boost with the announcement that from spring 2005 the Civil Aviation Administration of China intends to open Shanghai to all domestic carriers.
As Asia-Pacific gears up for its next growth phase, there is also some optimism from the beleaguered North American market, which crept into growth last year. The strongest US performer was Washington Ronald Reagan National, where the freeing up of extra slots at this constrained airport helped boost traffic by 10%. Chicago Midway saw a similar rise in passenger numbers. Midway is a hub for low-fare carrier ATA Airlines, which has been steadily increasing frequencies on existing routes and introducing new ones.
US airport woes
Some familiar names remain in the doldrums. The downsizing of its former TWA hub at St Louis by American Airlines saw the airport's traffic dip a further 20% last year. San Francisco too continues to suffer. At its peak in 2000 the airport handled 41 million passengers. Last year it was below 30 million. This decline came just as the airport completed its 10-year, $2.8 billion expansion programme in 2000, including a new international terminal. The 11 September terror attacks, the decimation of its transpacific traffic because of SARS and a failure to attract low-fare carriers have conspired to hurt San Francisco.
It is fighting to arrest the fall however, hiring a creative firm to lead the airport's first broadly based strategic marketing drive. Landing-fee discounts were also handed out last year to encourage more flights. There is some good news: the airport received a boost recently with the announcement from Air New Zealand that it will begin flights between Auckland and San Francisco in late June, making it the first new international carrier to serve the airport in five years.
Another in trouble is Pittsburgh. A severe reduction in operations by US Airways at the airport - the carrier no longer classifies it as a hub - has been the main contributor to its decline. Last year, US Airways demanded major cost cuts at Pittsburgh as a condition of it continuing to base a major operation there.
ACI's figures for its European members show a solid 4.2% growth in traffic last year. The emerging force of low-cost travel has spurred the region in the past couple of years, but mainline carriers too are seeing gains. According to Association of European Airlines (AEA) secretary general Ulrich Schulte-Strathaus: "In Europe, the underlying annual growth for AEA members is between 3% and 4%, worth bearing in mind when we are being constantly told that passengers are abandoning full-service airlines in large numbers."
But the two European airports with the strongest growth are those where low-cost carriers predominate: Berlin Tegel and London Stansted. The rise of Stansted has been remarkable. It has featured in all of the top 10 fastest growing airports rankings since 1999 as carriers such as easyJet and Ryanair, among others, have kept up their momentum. The airport gained further encouragement in late 2003 with the UK government stating that it should have a second runway by 2011-12.
With traffic levels finally appearing to turn the corner, attention will once again turn to that late 1990s issue - congestion. The good news, according to ACI's Behnke, is that while some capacity enhancements were held back over the past couple of years, many still went ahead. In addition, a portion of the recent growth has avoided traditional airports. "The beauty of the low-cost carriers is they tend not to fly into the big hubs - this means you get more service without a corresponding increase in congestion," he says.
Adding capacity
Over the past few years Asia-Pacific countries have been able to add a massive amount of new airport capacity far more rapidly than other regions, says Berg. That drive will continue over the coming two years with the planned opening of new airports in Guangzhou, Nagoya and Bangkok.
According to ACI's Economic Survey, which examines the spending plans among the world's main airports, capital expenditure has broadly held up, says Behnke. In 2001, the survey showed that airports invested some $23 billion. This amount rose slightly in 2002 and preliminary indications for 2003 show it rising a little once more. "These have been tough times, but airports continue to take the long-term view of infrastructure investment, and are building capacity once again at rates to accommodate future traffic growth," he says.
Overall, airports look to be in good financial shape to meet their investment needs. "The sector has proved to be very resilient, and the prospects for growth are very strong," says Maria Lemos, an airport analyst at ratings agency Standard & Poor's. She notes that no airport that it rates has defaulted on its bonds or loans during the last 15 years.
It is this kind of steady performance that has attracted many investors, from a variety of diverse sources, into airports. German construction giant Hochtief first entered the airport sector in 1995 with a project to build the new Athens airport. It established Hochtief AirPort in 1997 to manage its airport portfolio - now including stakes in Düsseldorf, Hamburg and Sydney airports - and it is looking to keep growth rolling.
Although the subsidiary as a whole will not start turning a profit until 2005, mainly due to large financing costs, it is nevertheless a business to which Hochtief remains committed, says chief executive Dr Reinhard Kalenda. "Hochtief is definitely happy with our decision to go into that business, and in general our expectations are met. We not only want to continue but still want to increase our portfolio," he states.
The interest of private investors in airports is essential because most analysts agree that state or local governments will not have the funds to pump in. Full or partial privatisations have become increasingly popular over the past decade, and more are on the way.
"It is the logical way for airports to finance development - you cannot put this on the back of governments," says Vancouver's Berg. Many Asia-Pacific airports are either being made into separate companies as a precursor to privatisation - such as in Korea and Japan - while others, such as Hong Kong, are well into the process of transferring to the private sector. "In the next five years a lot more of the big airports will go in this direction," believes Berg.
| Hochtief creates fund to finance airport growth In order to help it fund more involvement in the airport sector, Hochtief AirPort is seeking investors to create a special fund dedicated to buying stakes in airports. Hochtief's move will create the second major airport investment fund after that pioneered by Australia's Macquarie Airports, which has stakes in Sydney, Aeroporti di Roma and the UK's Bristol Airport. Hochtief began investing in airports in 1995 and has grown to become one of the leading independent airport management firms. The German construction firm has build up an asset base of €720 million ($850 million) with stakes in Athens, Düsseldorf, Hamburg and Sydney, says chief executive Dr Reinhard Kalenda. "We are considering how to continue in the future with the heavy capital involved in this business," he says. The idea is to combine its competency in running airports with the financial muscle brought by specialist financiers. Around a third of Hochtief's airport shareholding will be placed in the fund, which should be created by year-end. Hochtief has made an acquisition every two years, says Kalenda. Athens, Hamburg and Sydney have contributed positively to the company's bottom line, but capacity constraints at Düsseldorf have held it back, although a recent deal with regional authorities to boost movements should result in a significant increase in capacity. |
ANALYSIS BY MARK PILLING IN LONDON
Source: Airline Business
