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Fitch Ratings: 2008 Could Be Challenging for U.S. Airport Industry

Posted on: Wednesday, 13 February 2008, 12:00 CST

According to Fitch Ratings, 2008 will be a year of adjustment for the U.S. airport industry after coming off a period of economic stability that translated into improving credit fundamentals for the past few years. In the special report '2008 U.S. Airport Credit Outlook,' Fitch says while it is possible the strong operating environment experienced in 2007 will generate additional credit improvement at individual airports, changes in the domestic economic climate suggest travel demand could weaken in 2008 leading to a stabilization, or possibly slight deterioration, in industry credit trends. Other factors that could affect the financial health of the airport industry include the financial condition of the airlines and potential for industry consolidation, movement on the financial reauthorization of the Federal Aviation Administration, actions to confront the growing congestion in the air transport system, and the advancement of airport capital programs.

"The health of the economy will be the key driver in determining how the domestic airport industry will perform in 2008," said Peter Stettler, senior director in Fitch's Global Infrastructure group. "Potential declining demand for air service, increasing fares because of the run-up in oil prices and increasing congestion in air traffic are all factors expected to challenge the success of airports this year. In addition to these issues, possible domestic airline consolidation could influence the industry by altering hub and spoke networks."

According to the report, the most significant change facing U.S. airports is the potential decline in air service demand. Passenger activity is closely correlated to economic activity, which Fitch forecasts will slow in 2008 to a 1.7% annual growth rate as measured by gross domestic product. Fitch expects passenger activity to be flat or slightly down in 2008 with leisure travel possibly being affected should consumers restrain spending due to problems in the residential real estate market. As a result, airlines may reassign aircraft to more business oriented routes in search of higher returns but business travel may also be affected by a downturn in the economy, which could further weaken airline performance.

Fitch believes consolidation in the domestic airline industry could lay the foundation for more rational capacity decision-making in highly competitive domestic markets and should mitigate the impact of economic cycles on airline cash flow. Furthermore, should two network carriers announce plans to combine, Fitch expects the remaining carriers to quickly seek partners of their own.

2007 was one of the worst years in terms of air traffic delays experienced by the industry. An aging air traffic control system and lack of investment in airport capacity are leading causes of the challenge, as airlines continue to strive to meet the schedule demands of the traveling public. With the FAA not expected to fully implement its new air traffic control system for at least 15 to 20 years, Fitch expects congestion in the nation's airways to become an increasingly prominent problem. Without action to improve the current state of the nation's air service network, the domestic carriers could see demand for travel begin to decline, increased calls for regulation of schedules, and/or see increased competition from other modes of travel.

To access the full report, "2008 U.S. Airport Credit Outlook' visit www.fitchratings.com.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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