The coronavirus outbreak could weaken airports’ credit ratings if virus concerns spread to affect domestic flights.
In a report released Friday, Fitch Ratings analysts said a prolonged suspension of Chinese air travel will decrease passenger volumes and may put pressure on airport revenues. Currently, direct flights from the U.S. to China are seeing the slight impact of fewer passengers due to the coronavirus, but if passenger demand for domestic flights also declines, that could affect airports’ credit ratings in the future.
The decrease in domestic flights could stem from customers’ concerns about catching the virus, said Seth Lehman, Fitch’s senior director of infrastructure and project finance.
“It could be more people in the U.S. are picking up this virus, or there is a lack of confidence that airlines are safe from exposure,” Lehman said. “That could greatly expand the concern.”
The coronavirus started in Wuhan, China and has since spread globally affecting thousands of people. Some in the U.S. have recently been affected by the disease. Airlines, such as Delta Air Lines and American Airlines today suspended all of their mainland China flights.
So far travel bans are affecting large hub and international gateway airports. Those airports tend to be high investment grade and can absorb a decreased demand for flights, Lehman said. Those airports can handle a short-lived reduction in air traffic because of strong cash reserves. They can then adjust rates to cover costs, according to the Fitch report.
To overall change the credit outlook on the airport sector as a whole, there would need to be prolonged issues, which Lehman said he is not seeing yet. Also if airlines decide on their own to cancel flights for the safety of their employees and passengers, despite demand, that would also impact credit ratings, Lehman said.
If flights are impacted more broadly in Asia as a whole as well as domestic flights in the U.S., Moody’s Investor Services analysts said the virus would have a meaningful impact on credit ratings.
Moody’s has a positive outlook on the U.S. airport sector. If consumer behavior shifts domestically due to the coronavirus, that could lead to a downgrade to a stable outlook, said Earl Heffintrayer, vice president- senior analyst at Moody’s.
Only about 0.5% of all enplanements in the U.S. are between the U.S. and China, so a prolonged outbreak would have a minimal impact on total U.S. enplanements.
In 2018-2019, airports had strong performances, Heffintrayer said. So if the outbreak were to affect passenger demand in the U.S., it would still be above where it was in years’ past.
“We’re approaching this following very strong financial performance in 2018 and 2019,” Heffintrayer said. “So even what we would see in a downturn would really leave airports above where they expected to be a couple of years ago.”
Honolulu and Guam would see the greatest exposure to the coronavirus. A quarter of all passengers at the Honolulu International Airport come from Asia. At the Guam International Airport, 90% of its passengers come from Asia, Heffintrayer said.
“So if it does expand more regionally, those are individual airports that could see significant short term declines,” Heffintrayer said.
Heffintrayer would not say if those specific airports would be downgraded, but noted that any airports that have a drop in passengers could see that having a negative effect on their credit rating.
