For 2019, the outlook for the airport sector is mostly stable. Modest growth across global and regional economies looks set to boost airport passenger growth.
Moreover, while macro-economic factors such as a disruptive Brexit have the potential to limit this growth, a retraction in operating margins is not expected.
In fact, passenger growth, as well as intensifying competition, is driving expansion at several international airports.
This competitive framework creates opportunities for global merger and acquisition (M&A) seeking for gains of scale, while aeronautical revenues continues to represent the bulk of revenue mix.
The runway to Brexit
In most European countries traffic volume is rising in line with GDP growth – a trend that will likely mean a 2%-4% increase in airport revenues.
However, questions remain over how the impact of Brexit could hinder traffic growth – most notably for UK airport operators.
Chief among these concerns are the UK’s terms of access to the European Common Aviation Area (ECAA). Lingering uncertainty surrounding these terms could reduce volumes of traffic and freight passing through UK airports once Brexit takes full effect.
It also raises questions about the right of airlines to fly and whether the UK will retain its membership in the membership in the European Aviation Safety Agency (EASA).
Another area of friction is whether UK and EU citizens can travel between jurisdictions without a visa.
In our view, near-term uncertainty surrounding the eventual nature of Brexit could reduce the UK's inbound traffic and freight volumes. But given the UK’s dependence on air traffic, a complete cessation of EU-UK air traffic is unlikely to occur.
However, in the event of a disruptive Brexit airport operators with heavy reliance on EU-UK traffic could be sensitive to a period of disruption, or even a prolonged economic downturn.
As airports seek to consolidate their competitive positions across Europe, Asia-Pacific, and Latin America, M&A activity continues to represent a key trend.
The trend is perhaps most prevalent in Europe, where low interest rates, accumulating financial headroom and pipeline of opportunities have helped curate favourable conditions for continued M&A.
In France, for instance, a recent law has permitted the sale of stakes in Aerports de Paris (ADP) – the operator of the Charles de Gaulle and Orly airports. France-based infrastructure group Vinci, which currently holds an 8% stake in ADP, is keen to pursue this opportunity.
Although M&A activity is not expected in Latin America, a number of trends are worth monitoring. Brazil is set for auctions in the first quarter of 2019, in which 12 airports are scheduled to be privatised.
Since the entries of Vinci, Fraport AG, and Zurich international Airport AG into the Brazilian market in 2017, we expect international players to resume bids for Brazilian airports, particularly in light of their more favourable prospects under the new business-friendly administration.