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The World’s Airports Are Catching Covid, Too - BLOOMBERG

AUGUST 12, 2020

After they invested billions of dollars to become retail and leisure hubs, the pandemic has caused a dearth of free-spending travelers. 


By Bruce Einhorn and Angus Whitley              

In surveys of the world’s best airports, Singapore’s Changi regularly ranks near the top. A leader among utilitarian transportation hubs that have been transformed into upscale shopping destinations, Changi Airport in 2019 added Jewel, a futuristic play land with 1.5 million square feet of stores and attractions including a rainforest, hedge maze, and the world’s highest indoor waterfall. And the government had planned this year to begin selecting contractors to work on a huge fifth terminal to boost annual capacity 55%, to 140 million passengers.

Then came Covid-19. Traffic at the airport—long a preferred hub for globe-girdling business travelers—fell more than 99% in April, May, and June vs. a year earlier. Changi is hunkering down, mothballing two of its four terminals and delaying plans to build the additional one.

At airports the world over, the pandemic has wrecked a business model that relies on a steady influx of airlines and their free-spending passengers. So operators stuck with lifeless buildings are trying to dream up fresh ways to generate income. Changi is encouraging Singaporeans who aren’t traveling to shop tax-free at the airport’s struggling retailers. It’s also selling three-month admission packages to Jewel’s activity area. For other airports, new ways to make money include turning parking lots into drive-in movie theaters or unused land into renewable energy farms. “What Covid-19 has taught airports is they need to diversify their revenue sources,” says Max Hirsh, research fellow at the University of Hong Kong and managing director of Airport City Academy, which offers airport-related executive training courses. “Airports are going to have to figure out different ways to make money.”

It’s a stark change from the previrus era, when airlines were desperate for more runways, gates, and terminals to sustain a global aviation boom. Now pandemic fears and travel bans have chilled interest in taking to the skies and brought much business and international travel—the most lucrative kinds for airlines and airports alike— to a halt.

France’s Vinci, which operates London’s Gatwick and 44 other airports in Asia, Europe, Latin America, and the U.S., reported a 96% plunge in passenger traffic in the second quarter. Japan Airport Terminal Co., which runs Tokyo’s Haneda, had an operating loss of about 17.5 billion yen ($165 million) in the three months ended in June, with revenue plunging 87%.

The International Air Transport Association expects $100 billion in aviation industry losses by next year, with a return to pre-pandemic traffic not happening until 2024. Even worse, international traffic may not recover before 2027, Philippe Pascal, executive director of finance, strategy, and administration for Aeroports de Paris, said in a July 28 call with analysts.

Still, even though their customers are largely gone, facilities must stay open for business, says Mirjam Wiedemann, a lecturer and researcher in aviation at the University of South Australia. “No government can allow the hub to close,” she says. “A major airport closing, that’s unthinkable.”

Large operators are asking creditors for help. Heathrow Airport Holdings Ltd. on July 9 said it secured a covenant waiver until 2021. Fraport AG Frankfurt Airport Services Worldwide has also asked lenders for assistance. The top 10 airports in the U.S. face payments in interest and principal totaling almost $14 billion by 2022, according to Bloomberg Intelligence.

While they await a rebound, some airports have tried to put their real estate to use. Southern California’s Ontario International operated a free drive-in movie theater in a parking lot in June and July. To generate long-term revenue, Edmonton International in Alberta last month announced plans to open a 627-acre, 120-megawatt solar farm. Munich Airport in June reached a deal with DHL Express Germany to build a €70 million ($82 million) cargo facility on land currently used for parking.

To save money, many are firing workers or closing facilities. Copenhagen Airports will cut 25% of its 2,600-person workforce and reduce costs by 325 million Danish kroner ($51 million), the operator said on Aug. 5. Corporación América Airports last month said it would temporarily close Aeroparque Airport, one of two airports serving Buenos Aires, for about four months to do renovation and expansion work.

There’s also the possibility of government aid. In the U.S., the Cares Act included $10 billion that went mostly to regional and commercial airports. In negotiations for the next round of stimulus, Republicans have proposed another $10 billion, mostly for large hubs. Debt investors have so far been accommodating: Dallas Fort Worth International Airport sold $2 billion of bonds in July, though coronavirus cases in Texas were surging.

Some Asian governments are betting the pandemic will be over by the time expansion projects are done. In Thailand, the first phase of a $9.4 billion project south of Bangkok is due to open in 2024. Hong Kong is spending $18 billion to expand its airport. China, South Korea, and Vietnam are continuing costly building projects, too.

Planners must look beyond Covid-19, Airport Authority Hong Kong Chairman Jack So said in June, when announcing a HK$35 billion ($4.5 billion) loan for its expansion project, known as the Three-runway system (3RS). “The pandemic crisis has not distracted us from our long-term vision of securing the airport’s position as a leading international aviation hub, for which the development of the 3RS holds the key,” he said.

When passengers return, airports should reassess how they make money, says Greg Fordham, Melbourne-based managing director of Airbiz, a consulting firm that’s worked on airport projects in Brussels, Dubai, Hong Kong, and Singapore. This could include arranging hotels for air crews and directly providing passengers with everything from fine dining to health treatments. The crisis “is a great opportunity for airports to get involved in things that they haven’t in the past,” he says.

But for now, airports are concentrating on tweaking their operations to address the realities of pandemic-era travel. New Zealand’s Auckland International said on Aug. 3 that it will split its international terminal into two zones—one for passengers traveling to and from countries in New Zealand’s safe-travel corridors, the other for travelers requiring isolation or quarantine. The airport has also suspended NZ$2 billion ($1.3 billion) of capital projects.

“It’s still unclear what the recovery looks like,” says Auckland airport Chief Executive Officer Adrian Littlewood. “You can’t expect governments to come up with all the answers. The sector needs to get on its feet and propose answers to help figure out what living with this looks like.”

  —With Kyunghee Park   

BOTTOM LINE - Airports such as Singapore’s Changi saw traffic crater in the months following the pandemic’s surge. That’s forcing many of them to put expansion plans on hold. 

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