The outlook for the U.S. airport sector is stable as Moody's Investors Service expects the airports to maintain the measured performance and financial gains they've achieved over the last year. Moody's outlook on the airports had been negative since 2008.
"The projected modest economic growth in the US and global economies should support enplanement and subsequent revenue increases, although the modest growth also exposes the airlines to downside risks," says Moody's Analyst Earl Heffintrayer, the lead author of the report "US Airports: Stable Outlook But Exposure to Downside Risks Linger."
"Better than expected operating results in 2011 and 2012, however, provide some cushion for minor weakening in airport enplanements, should they occur," says Heffintrayer.
Although airport finances have strengthened over the last two years, they remain below pre-recession highs and sensitive to downside risks, says Moody's.
The increased financial strength of airlines, which reduces the risk of sudden, hard-to-manage service declines at the airports, also supports a stable outlook.
However, fewer seats and higher fares as airlines continue to consolidate will make enplanement growth difficult. The expiration of the payroll tax holiday, which will cut into the discretionary spending of consumers, may take also a toll on leisure travel.
Moody's expects average enplanement growth to be approximately the same rate as GDP growth, or roughly 2%.
A negative for airport credit quality is that federal funding of airport-related activities remains uncertain. Although the long-term FAA reauthorization bill passed in 2012 provides for stable funding levels, these levels are currently exposed to across-the-board cuts from sequestration, debt ceiling, or budget negotiations.
The stable outlook reflects Moody's expectation for the fundamental business conditions over the next 12 to 18 months. The industry outlook is not an explicit signal of the likely direction of ratings in the industry.