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European airports sector outlook downgraded to 'stable' from 'positive'

Publication Date: 06 Nov 2018 - By ReachX Team By ReachX T.

Macro Environmental, Social & Governance Equity Fundamental Multi Asset Equity Fixed Income/Credit UK EU Consumer


Growth in passenger numbers at European airports remains positive, underpinning the stable outlook on the sector over the next 12 to 18 months, but is showing signs of deceleration, according to Moody’s.

In a note to clients, the global rating agency said slower traffic growth is the main factor behind the change to a stable outlook for the industry, following the positive outlook assigned last year.

"Higher oil prices and airline industry consolidation are increasing air fare inflation, while holidaymakers are returning to non-EU Mediterranean destinations, such as Turkey and Egypt. These factors are taking some of the wind out of European traffic growth and prompting us to change the outlook on the sector to stable into 2019," said Raffaella Altamura, Vice President and Senior Analyst at Moody's.

The agency expects traffic growth, which is a fundamental driver of sector credit quality, to fall at airports in continental Europe to 3%-5% in 2019 from 4-6% in 2018. For UK airports, excluding Heathrow, traffic growth will be weaker than for European peers in the 2%-4% range in 2019 as Brexit uncertainty and Sterling weakness bite.

Oil prices, which have remained low for an extended period, have increased by almost 20% since the start of 2018, contributing to an acceleration in average fare inflation. Airline failures and the consequent consolidation of the airline industry also means that stronger airlines could rationalise capacity and increase air fares.

Traffic growth will remain positive despite the slowdown, benefitting revenue generation, supporting not only aeronautical activities, but also non-aeronautical and commercial operations.

Passenger traffic to non EU-Mediterranean destinations such as Turkey, Tunisia and Egypt is recovering as geopolitical and terrorism concerns recede, which will lead to a better distribution of European leisure traffic.

There are however significant downside risks for UK airports stemming from Brexit. Moody's base case is for new aviation agreements to be put in place, but UK airports are exposed to risks that include, at the most extreme, the loss of air traffic rights which could affect more than 75% of air passenger traffic, directly or indirectly if no new agreement is reached. 

Nevertheless, Moody's expects that, in the unlikely event of a no aviation deal scenario, associated disruptions would only be temporary, due to the critical importance of air travel across Europe.


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