DALLAS — Airports will ramp up their capital spending over the next five years to both accommodate passenger growth and work off a backlog of postponed projects, Moody's Investors Service said in a recent report.
"We expect US capital expenditures will begin to rise in 2015 through 2017 as the economy has strengthened, aviation industry conditions have stabilized, interest rates remain low, and deferred maintenance needs are beginning to accumulate," Moody's said.
Capital spending on terminals, runways, and related facilities has slowed over the past few years because passenger growth since 2008 has been stagnant at most airports, according to the report.
Slower growth in passenger loads means that while some new terminal facilities that had been planned are no longer needed, the resulting reduction in the number of airline flights has increased the competition among airports for passengers.
"Expansionary projects have slowed in regions where passenger growth has [been] reduced such as the Northeast and Midwest, but airports in these regions continue to pursue some projects to improve and repair aging facilities and enhance opportunities for retail revenue growth," the report said.
In December, Moody's raised its outlook for the airport sector to positive from stable for the first time since early 2013. Before the improvement to stable, the airport outlook had been stuck on negative since 2008.
Infrastructure investments continued during the recession at large hub airports with international connections that serve major markets or regions with strong economic growth such as Los Angeles International, Dallas-Fort Worth International, and Chicago O'Hare International, the report said.
Enplanement growth, or the number of passengers who board planes at an airport, has stagnated since the recession. The large hub airports saw an anemic 0.8% increase in passengers in 2013, but that was better than the negative numbers posted by small and medium hub airports, Moody's said.
Air passenger growth began to accelerate in mid-2014, and that trend should continue, Moody's said. Increases in air travel will be higher in the next five years than over the past five, which will give airports the opportunity to upgrade their facilities.
"As robust passenger growth has resumed in recent months, the need to accommodate future passenger growth and the desire to provide a better passenger experience will be the primary drivers of future spending," Moody's said. The Department of Transportation's Bureau of Transportation Statistics reported last week that airlines transported 662.3 million domestic passengers in 2014, an increase of 2.6% from 2013, and 185.8 million international passengers.
An infrastructure report released earlier this month by Airports Council International-North America said U.S. airports have $75.7 billion of capital development needs through 2019. Revenues from the passenger facility charges and bonds, supported in part by the passenger charge, are used by airports to fund some 60% of facility upgrades, ACI-NA said.
Airport advocates have asked Congress to raise the passenger fee to $8.00 per flight segment from the current $4.50, which would generate an additional $2.4 billion a year to fund capital improvements.
PFC collections totaled $2.8 billion in fiscal 2013, according to the federal General Accounting Office.
