Smaller airports, transfer hubs, and airports with a large proportion of business from only one or two airlines will be most vulnerable if the remaining U.S. legacy airlines continue to consolidate, Fitch Ratings said in a report issued yesterday.

“Fitch believes that larger airports with strong underlying demand and modest leverage are generally in a better position to address these circumstances with more options,” the report said. “Smaller airports, or those with high debt burdens, high connecting traffic, or elevated carrier concentration, will likely face more difficulty in responding to the repercussions of carrier mergers.”

Airports in Chicago, Detroit, Minneapolis, Memphis, Cleveland, Atlanta, Dallas-Fort Worth, and Houston are among the transfer-heavy airports that rely on one or two major airlines, the rating agency pointed out. They “face elevated levels of risk from carrier consolidations as it is likely that the connecting service cannot be practically backfilled or replicated,” the report said.

Airlines and airports have suffered in recent years from declining passenger traffic and other economic stresses such as increased fuel prices and construction costs. As a result, some airports have been downgraded or given lower rating outlooks by Fitch.

The sector overall has remained “largely sound with no apparent threats of bond defaults or even material covenant violations,” Fitch said, praising airport management for taking actions such as cutting operating budgets and deferring capital spending or borrowing.

“Still, it cannot be understated that airport activity is highly dependent on the route networks of commercial airlines and will be influenced by shifts in service and capacity,” the report said. “Given the precarious position of the airline industry and the need for consolidation, airports need to be prepared for this kind of change.”

In the future, carriers are likely to make changes based on costs, profitability, and cutting down on duplicate flights, Fitch said. Depending on an airport’s size, location, and purpose for airlines and travelers, airlines’ decisions could be either good or bad in the event of a merger. For example, the report said large, busy airports in destination cities would probably emerge from airline consolidations in a better position than smaller airports served only by the airlines that are consolidating.

“On the other hand, mergers could have a positive effect by strengthening the merged carrier’s ability to compete on more routes and possibly protect market share from the encroachment of low-cost carriers,” the report added.

Fitch airport analyst Seth Lehman noted that, following the American Airlines-Trans World Airlines merger nine years ago, the St. Louis airport had much lower hub activity from the combined airline. Last year, Fitch lowered the airport’s debt to BBB from BBB-plus and gave it a negative credit outlook partly due to decreased airline service.

“Airports may need to sell themselves harder to the airlines to keep service” following a consolidation, Lehman said.

There is likely to be a large cushion of time for airports to adjust to mergers, according to analysts. The financial close of the merger between Delta and Northwest Airlines happened more than 18 months ago, but most U.S. routes have not yet changed substantially.

Moody’s Investors Service warned earlier this month that smaller hub airports serving United Airlines and US Airways could face credit risks if the companies merge. Hubs that depend on high levels of service from each airline also could be hit hard by such a merger, it said.

Meanwhile, the House yesterday voted to extend the Federal Aviation Administration and airport-related programs through July 3. Their authorization is set to expire at the end of this month. The Senate also must approve the measure.

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