The Omicron coronavirus variant is the latest obstacle for airports globally with renewed travel restrictions but it is too early to say if Omicron will be a significant disruptor to international air traffic, Fitch Ratings says. Testing requirements have become more stringent, which could dampen the recovery prospects of airports that rely on international travel. A material slowdown in air travel would maintain pressure on global airport revenues and credit quality.
US airports are expected to remain resilient due to the strong domestic travel market. The US market is largely based on domestic travel, and air traffic continues to improve, reaching 84% of 2019 levels in November 2021. Many airports reached 90% or more of 2019 levels in recent months. Border closures with certain countries would only affect certain US international gateways and only to a limited extent. Most of the largest international gateways have only 30% international travel and are diversified in markets served.
Canadian airports, which still lag behind the US in recovery of air traffic and have only seen a strong uptick over the past four months following a loosening of travel restrictions, could see a slowdown again, particularly if restrictions are reimposed. US travellers constitute 20% of Canadian air traffic, with travellers from other countries composing another 20%.
While the risk of a synchronized lockdown in EMEA seems remote for now, this is certainly a downside risk to the fragile short-term EMEA sector outlook, which heavily relies on leisure and international short haul traffic. Europe’s traffic recovery significantly lags behind North America, Russia and some countries in Asia, regions with much bigger domestic markets. On the positive side, liquidity of EMEA airports remains sufficient for the next 12-18 months or even more, which should help mitigate cash flow disruptions. Additionally, the EU is moving toward a more coordinated approach based on a digital travel pass, premised on the passenger vaccination status rather than epidemiological situation of the country of origin.
Fitch states that it is too early to say whether Omicron warrants a revision of its base case traffic forecast for EMEA. Long-term travel forecasts, which anticipate recovery of 2019 levels by 2025, likely will not be affected, but Fitch’s short-term forecast may change if a seasonal coronavirus surge drags on air travel growth.
Fitch does not expect Omicron to affect the sizable domestic travel market in APAC. International borders have started to open but this could be reversed or delayed should Omicron become widespread. No lockdowns are anticipated in Australia but China’s stringent international travel restrictions remain in place.
A nationwide lockdown in India is considered highly unlikely. Domestic travel constitutes almost 70% of traffic, even in international gateway airports. International travel air bubble arrangements are likely to continue, although full resumption of commercial flights for international travel, which was being contemplated from mid-December, will likely be delayed.
A setback in international travel, a significant market for Latin American (LatAm) airports, would prolong an already slow recovery for airports in the region. Airports with smaller levels of business travel and a higher proportion of domestic passengers are better positioned and expected to recover more quickly, as domestic travel is recovering faster than expected and should reach 2019 levels in 2022 in some countries. In its rating cases, Fitch assumes an overall recovery of around 80% of 2019 passenger volume in 2022 for most rated LatAm airports, with a full recovery achieved in 2023 or 2024. While there are new restrictions, such as quarantine measures in Brazil for non-vaccinated passengers, it is too soon to incorporate the effects of Omicron in our traffic expectations.