Introduction
Annual airport traffic data for 2023 might be considered the first ‘normal’ performance since 2019.
However, although a closer look at the world’s top 20 airports offers an average passenger growth rate in 2023 versus 2022 of 38.2%, they still remained 35.9% behind the total for 2019.
All remains not equal, and there is not a great deal of consistency as pandemic recovery rates still vary considerably between regions, albeit to a lesser extent than the previous year.
The COVID pandemic still hangs heavily over the airport industry. During the pandemic many construction activities were suspended or cancelled altogether.
It might have been hoped that there would be a turnaround latterly, but the world is governed by events such as the invasion of Ukraine, and also the knock-on effect on supply lines, business and inflation well beyond that country’s borders. All of these have contributed to an ongoing economic downturn.
Consequently, while the full impact of the pandemic will take years yet to play out, in the near term it has reshaped the entire infrastructure industry in four ways: intensifying its focus on operational resilience; the affordability of that infrastructure; the deployment of new technologies; and the need for sustainability.
Those are important reasons why infrastructure investment in both existing and new airports has close-to halved since before the pandemic.
This year’s GAD (Global Airport Development) World, the #1 networking event for global airport operators and investors, takes place in Munich, Germany on December 11-13, 2024, at what is a critical time for development in the airport sector.
GAD World is a unique event dedicated to sustainable airport business growth and infrastructure development through best practice financing, management and strategy.
The forum brings together stakeholders from all sides of the airport business, from public and private airport operators, financial and strategic investors, regulators, and industry experts from around the world.
GAD has been uniting airport stakeholders since 1994, and last year’s GAD World brought together over 270 attendees from the airport investment and development community. This year’s event represents an unmissable opportunity to identify new investment opportunities, partners and business prospects.
Marriott Hotel City West, Munich, Germany
Entering a new golden age for commercial aviation
The global air travel industry has arrived at sweet spot – perhaps whether the industry realises it or not.
Air travel demand continues to grow, and consumer trends point to travel and tourism being given increasing priority over other forms of discretionary spending. Travel, it appears, has become more important to us than ever before.
At the same time, capacity discipline is being imposed on the sector. With OEMs struggling to sort supply chain tangles and deal with other challenges, aircraft deliveries are likely be depressed for the next few years.
This is not entirely a negative. The tightness of supply is supporting fares at healthy levels and restraining the tendency in some segments of the industry towards headlong expansion.
On top of this, the sector is engaged in a deep modernisation.
COVID-19 tipped the balance on digitalisation, sending airlines racing to embrace new technologies to solve issues as far-ranging as personnel shortages, uncertainty in pricing, and increasing demand for product personalisation. Airlines are undergoing a quiet revolution, transforming their digital and physical products to enhance services both on the ground and in the air.
While airlines took a battering from the global pandemic, the industry at large is emerging fitter and more competitive.
This is not to say there aren’t challenges. Airlines remain heavily indebted, profitability is concentrated geographically and business travel appears to have suffered some structural decline.
But the industry is showing that it can tackle these and do so profitably.
While the ‘good old days’ of air travel are over, the industry needs to recognise that the ‘good new days’ are here. Air travel is more accessible, more convenient, and safer than ever, with more options for service and comfort than at any time in the industry’s history.
With the industry at such a juncture, breathing room is being created for another wave of industry transformation and structural reform. The last wave – triggered by the need to survive the pandemic – was painful, and foisted on the industry externally.
This next wave needs to be more thought-out, controlled, and mindful of both commercial realities and the need to reconfigure the aviation industry to meet its challenges.
But what does it mean for the world’s airports?
Big hubs to small regional facilities, a number of issues will impact strategies moving forward.
Airports - catering for the next range of aircraft
One should really begin with how the sector has to face up to hosting the next range of aircraft.
Where the current ones are concerned, with Boeing subjected to deep scrutiny on several counts, and certain Airbus types being withdrawn for inspections too. Although many previous types can no longer operate due to strict noise and emission rules, a potential problem for some airports might be finding the airlines that can meet the demand on key routes.
But beyond that they will be looking to how they can cater for the wide range of aircraft that will need servicing in the future, and that ‘future’ gets nearer every day.
Will they be big or small? (The current trend is towards the elimination of four-engined widebodies, but at the same time two-engined narrowbodies are getting larger). That has implications for terminal design.
Will they be faster or slower? There has been little change in typical speed, which is around 600mph/960kmph since Boeing’s Sonic Cruiser (which would have flown at 1210kmph/756mph) concept was scrapped in favour of the more cost-effective, but slower, Boeing 787.
But there are plenty of plans on the drawing board, and some are well advanced for supersonic aircraft – and they will return one day. Things have a way of coming around.
More importantly still, how will aircraft be powered?
What happens if Jet-A1, electric, hydrogen and hybrid vehicles all have to be catered for at once, even at small regional airports? Or another propulsion system emerges to act as a silver bullet? What are the infrastructural ramifications? How will the supply lines be satisfied? And how will it all be financed?
Speaking of finance…
The continuing decline of, or at least hiatus in, full airport sale and lease deals versus the rise of the PPP/P3 deal
The latter, which are essentially just renamed Build-Operate-Transfer (BOT) transactions, are more often than not connected to specific infrastructure, such as terminals, cargo buildings, car rental centres, people movers, office blocks and so on. They can be applied to any new or refurbished piece of infrastructure.
This particular trend is being led out of the United States of America, where P3 deals are or have been in place at airports from coast to coast, and where they account for recent infrastructure construction at all three of the main New York airports. (N.B. in America a P3 is interpreted as being a whole or partial airport lease deal).
Because they are potentially at least a win-win deal for both par ties, especially the public sector, which has other and more pressing financial demands to satisfy, we can expect to see this trend continue, globally.
Because the size and scope of an organisation positively impacts on its ability to finance and manage its operations, it is important to recognise…
Airport Financing & Investment - GAD’s 2024 Airport Megatrends
The increasing influence of the Airport Group
An airport group is a collection of airports (as few as two) under the ownership or management of an organisation that could be in the public or private sector, or both, but more often the private one.
These include for example Groupe ADP, VINCI (both France), Fraport (Germany), AENA (Spain) and Corporación América Airports (Argentina).
While these mammoth organisations with up to 70 local and foreign airports in their portfolio (more in the case of AENA, including its huge domestic inventory) tend to have locally based subsidiaries, mainly in Latin America, it is clear that the epicentre of this activity lies within Europe, and will continue to do so (with the exception of the UK, which all but gave up on managing airports abroad long ago).
There are 27 airport groups recognised by Airports Council International out of a 2022 study (actually more according to CAPA - Centre for Aviation data), comprising 425 airports and collectively handling 29% of global passenger traffic and 23% of cargo tonnage.
And the top 38 largest investor-owned (fully or partially) airport companies represented almost a third of 2022 world airport revenue; and half of that was at just five companies.
They continue to grow in size and scope.
There is little M&A activity between them at present, though, as is the case with all investors in airports - apart from on sales of concessions. As is also the case in other sectors due to the lingering impacts of the COVID-19 pandemic and the Ukraine war.
SEE RELATED CAPA – CENTRE FOR AVIATION REPORT: The increasing significance of the Airport Group
Another aspect of finance that must be highlighted where airport infrastructure is concerned is…
Green financing
The need for green financing as opposed to the desire for it increases all the time.
Clauses are often demanded by central or regional governments or municipalities that any sale or lease of an airport or any improvement to the estate that requires investment must support environmentally-friendly activity, such as purchasing environmentally-friendly goods and services, or building environmentally-friendly infrastructure.
There is no sign of a let-up in these demands, even if ESG is not quite as significant as it was in the boardroom in some countries, and they will apply to most such transactions by the end of 2024.
Green financing transactions are normally by way of bonds.
In a recent transaction (Jun-2024), New Terminal One, the coalition of airlines, labour, minorityowned and woman-owned businesses, and operating and financial partners, were drawn together to construct and operate a 2.4 million sqft terminal at New York John F Kennedy International Airport. They concluded a USD2.55 billion Green Bond issue – the largest ever municipal bond financing for an airport project in the US.
Proceeds from the 2024 Series bonds will be primarily used to finance and refinance a proportion of the costs of constructing the initial phase of the New Terminal One development.
The bonds were initially marketed at USD1.5 billion. Due to investor demand indicated during premarketing, and then demonstrated during the order period, the issue was ultimately upsized to USD2.55 billion.
We can expect more of the same – and especially in the US, where bonds remain a critical and popular method of airport financing, and irrespective of the presidential election result in Nov-2024.
Returning to the topic of infrastructure, it is interesting to note… Airport Financing & Investment - GAD’s 2024 Airport Megatrends
Airport Financing & Investment - GAD’s 2024 Airport Megatrends
The increase in the numbers of private airport terminals
CAPA – Centre for Aviation was the first to realise and report on the emergence and significance of low cost airports and terminals (LCATs) in the early 2000s (catering mainly to low cost carriers), the reporting being done by way of innumerable articles and two full-size research reports.
The incidence of the ‘Low Cost Terminal’ has declined dramatically in the last 10 years, and it is rare to find any example of such a building being constructed now, although low cost pier additions to terminals have not disappeared entirely. Operational hybridity and ‘one-size-fits-all’ are the watchwords – how to meet the needs of full service and budget carriers and their clients under the same roof.
The trend today is in the opposite direction, towards high-class lounges and select terminal facilities aimed at a discerning clientele (and one that has deep corporate or personal pockets), a group who are prepared to pay to separate themselves from the hoi polloi.
‘Private’ terminal here means one accessed for a fee, as opposed to a general one that is privately owned or leased (although they can be of course). The degree of extra service they offer varies between ‘Main terminal +’ and outright indulgence.
There are known to be around 50 of them today, most of them in Europe, a couple in the Middle East and Southeast Asia (where there is massive potential), and a growing number in the US, where a different marketing model (membership, rather than ad hoc use) is employed.
Their numbers are sure to increase.
SEE RELATED CAPA – CENTRE FOR AVIATION REPORT: What does the opening of Manchester’s ‘private terminal’ say about the future of these facilities?
SEE RELATED CAPA – CENTRE FOR AVIATION REPORT: Private airport terminals – to VIP or not to VIP?
Returning to the environmental theme…
The ‘Airport Estate’: non-aeronautical revenues, and how the weird and wonderful is being replaced by solar panel farms
Since the beginning of this century, and long before that in some cases, airpor ts have been inventive in how they use their land.
The CAPA – Centre for Aviation Global Airport Privatisation Report of 2005 identified the creation of non-aeronautical revenue streams going well beyond the historical ones of concessions for interminal retail outlet sales, food & beverage facilities, advertising, and car parking, to include a wide range of creative uses.
They included business parks (which typically began life as logistic park extensions to existing cargo handling facilities and which later morphed into ‘airport cities’); discount shopping outlets (which could cannibalise in-terminal sales); on-site gambling; discotheques; spor ts facilities including golf courses; and motor racing circuits – and even amusement theme parks.
Nearly all of them could be bracketed as ‘fun’.
Today, as the frenetic drive for ‘net zero’ by 2030/40/50 embraces just about every airport, it is a different world, and one dominated by the imposition on the airpor t to show that it is doing whatever it can to help ‘save the planet’, rather than ‘entertain the traveller’.
That imposition has manifested itself increasingly in the form of the deployment of solar panels – on terminal and office building roofs, in car parks, in every spare nook and cranny, and – where there are large amounts of unused land across the airport estate – in huge ‘farms’, even though glare from them can be a safety issue.
Many Indian airports – early pioneers – are now wholly reliant on such farms for their electricity, and even supply spare power to the national grid.
Hardly a day passes by in which a new large-scale photovoltaic system is not reported at an airport somewhere in the world.
The entire sector remains, through its representative bodies, wholly committed to decarbonisation, even though it knows that it means that airport charges must go up to pay for the necessary investment, which consequently affects ticket prices, and that purchaser sentiment towards environmentalism only stretches so far.
While such utter dedication to a cause remains, though, it is quite possible that we will see the concept of the ‘airport city’ begin to change to one of a wholly supportive ‘environment for the environment.’
As new forms of SAF are invented, for example (those that do not require the wholesale destruction of agricrops), it is possible to envisage their production and storage at the airport site for direct transfer to aircraft without the need for hundreds of miles of pipes, or battalions of tankers.
In Europe, 2% of total aircraft fuel must be in the form of SAFs by 2025, rising to 70% by 2050. (And it should be noted that some SAFs can now be produced using solar heat).
After all, while some airport cities have been roaring successes, with rows of gleaming office blocks, hotels, leisure facilities and state of the art apartments, not all of them have.
And with a quarter of all US office space currently standing empty and occupancy rates at 50%, with commercial property values decimated as work from home has become the seemingly immovable norm, what is the future of the office anyway? Whether it is in a city centre or at an airpor t?
It wouldn’t be pretty, but then the industrial future in literature has always been painted as bleak. ‘Plus ça change, plus c’est la même chose’.
Rail travel – replacing air travel across Europe and close to reaching jet aircraft speeds in China
Finally, what cannot be overlooked is the continuing threat of the train – rail travel.
It really should not be like this; there should be no ‘threat.’
In 2017 CAPA – Centre for Aviation researched an in-depth report into how air & rail could, and should, co-operate, and indeed there are many examples of just that.
At the simplest level it means operating high speed rail lines through airports so that they complement local domestic air services, removing the need for some air services and providing the opportunity for through international-domestic and v.v. ticketing combining air and rail.
But there are politicians dedicated to replacing air services with rail wherever possible, not encouraging the two to work in harmony.
In the last four years in the US there has been a continuing shift in the preference of rail over air by the government, but it was hindered by the lack of a reliable high speed rail (HSR) network. In California the authorities have palpably failed to deliver on a seminal San Francisco – Los Angeles –San Diego HSR.
Airlines and airports had to be bailed out due to the COVID pandemic, which kept them and their value consistently in the mind’s eye.
And although 85% of Americans live in urban areas, that does not always mean right in the heart of big cities. The hub & spoke air travel system that has existed since the late 1970s across more than 500 commercial airports, allied to the emergence of point-to-point thinner routes operated by low cost and ultra-low cost airlines has established itself as the optimal method of moving a population that moves more often than just about anyone else.
Europe is far more advanced in its conversion therapy from air to rail travel.
In Oct-2023 CAPA – Centre for Aviation published an article on a proposal by a Dutch think tank that 13 international cities within an 800km radius from Amsterdam could be connected by rail better and more environmentally soundly than by air, hinting that the proposal is the thin end of the wedge for mainland Europe.
SEE RELATED CAPA – CENTRE FOR AVIATION REPORT: Air vs. rail: Netherlands’ institute proposes replacing air with rail to 13 cities out of Amsterdam
That comes on top of France’s earlier (Jun-2023) decision to implement a decree banning domestic air services on routes where there is an alternative train journey of less than 2.5 hours’ duration.
In the UK, this is what the recently elected Labour Party (with a huge supermajority, so it can push through whatever laws it likes for five years) said about air transport in its election manifesto: “Labour will secure the UK aviation industry’s long-term future, including through promoting Sustainable Aviation Fuels, and encouraging airspace modernisation”.
That is the sum of it. 20 words. Hopelessly vague, and totally devoid of anything actionable.
This is what it said about rail travel: “(We plan) to bring the operation of England’s railways under public ownership. The party proposes to operate England’s railways through Great British Railways, a new body with responsibility for ongoing investment and day-to-day operational delivery”.
In other words, an entirely public sector, government-owned, rail service operating domestically in competition with the air travel that the government holds no interest in whatsoever. That competition will not last for long.
The ultimate scenario is for international air travel to be fed by rail services into London Heathrow Airport, which is a concept not dissimilar to the one in Poland for the new airport there, and not unrelated either to the one promoted by a highbrow academic think tank, UK Fires, which demands only three airports for the whole of the UK by 2030.
The position is not quite the same in Asia, for example in China, where high-speed rail has not had the same degree of impact on air services.
But a 1000km/hour magnetic levitation train, which is getting closer to fruition every day, the realisation of the ‘Hyperloop’ concept, would change the ball game completely, and not only in China.
SEE RELATED CAPA – CENTRE FOR AVIATION REPORT: Does China’s 1000km per hour ultra-highspeed train spell more trouble for the airline business?
In the history of public transport the direction has always been forward, and faster. From foot to horseback, to stage coach, to motor vehicle, to rail locomotive, to propeller aircraft, to jet aircraft.
While many today dabble with AUMs like flying taxis, and some play around with public space travel, it looks as if in many countries the next step will be back to the past rather than to the future.
This year’s GAD (Global Airport Development) World, the #1 networking event for global airport operators and investors, takes place in Munich, Germany on December 11-13, 2024, at what is a critical time for development in the airport sector.
GAD World is a unique event dedicated to sustainable airport business growth and infrastructure development through best practice financing, management and strategy.
The forum brings together stakeholders from all sides of the airport business, from public and private airport operators, financial and strategic investors, regulators, and industry experts from around the world.
GAD has been uniting airport stakeholders since 1994, and last year’s GAD World brought together over 270 attendees from the airport investment and development community. This year’s event represents an unmissable opportunity to identify new investment opportunities, partners and business prospects.
Marriott Hotel City West, Munich, Germany
11-13 December 2024
Marriott Hotel City West, Munich, Germany
The #1 networking event for global airport operators & investors
Build partnerships across public and private to develop, finance and invest in airport infrastructure.
350+ attendees, 100+ strategic & financial airport investors, 40+ airports & airport authorities, 40+ countries represented.
