Smaller Airports Faring Better In Current Climate

North American airport hubs dominated by American Airlines and United Airlines have taken the hardest financial blow in the travel slowdown, according to Standard and Poor's analysts, speaking today upon release of credit updates for 31 airport and aviation facilities. On the other hand, airports hosting smaller, lower-cost carriers have continued to perform "quite well" since last October and this trend shows no sign of slowing, according to findings.

Causing the greatest financial hesitation are the unclear "true" costs of federally mandated security programs, said S&P analyst Kurt Forsgren. For example, the cost to purchase explosive detection systems for all U.S. airports--estimated in the billions--may be paid by the federal government, but "it is likely that the cost of installation and related costs may not be a federal obligation," Forsgren said. Northwest Airlines officials said Detroit Metropolitan Airport's new Edward H. McNamara Terminal/Northwest WorldGateway, scheduled to open Feb. 24, was not designed to accommodate the minivan-size machines. Moreover, there remains an anxiety among airport officials regarding the new nature of security operations, Forsgren said. "Airports are concerned about the federal government's role in security. They worry that it will be no more effective than the work now being done by private companies. They're worried about interacting with the behemoth of federal government, especially given their past interaction with the Federal Aviation Administration, which is underfunded and undersourced. In our view, they're skeptical of their ability to comply with the security deadlines, given the lack of communication so far with the government."

Overall, airports will continue to face significant challenges in the next year to year-and-a-half, according to S&P. Most airports currently retain some financial flexibility and liquidity, often gained by rolling back plans for capital improvement programs, S&P said. Most airports have put at least some of their capital improvements on hold, Forsgren noted, especially as federal funds typically designed for capital improvement grants now are being directed toward security.

Airport concessions, which were hit early on by the drop in travelers and which account for one-third to one-half of airport revenue, are reporting a financial boost as travelers arrive earlier for their flights and purchase food that might no longer be served during their flight. Parking fees remain depressed, Forsgren said, as a parking ban within a 300-foot airport perimeter imposed by FAA remains in effect. Meanwhile, car rental business--another notable funding source for airports, "continues to be affected quite dramatically," he said. These combined worries have shifted airports' corporate view to a "yield" mentality, or moving as many passengers as possible as quickly as possible, Forsgren said.

Of the 31 airport and aviation facilities ratings published today, one-third were affirmed to have stable outlooks--a category below positive. S&P said it expected most airports eventually to return to a stable outlook barring any further shocks to the industry or a prolonged recession, but with a reduced flexibility for future spending.