Moody's Investors Service Thursday revised to negative its outlook for the U.S. airport industry, based on the financial instability of the U.S. airlines brought on by a slowing national economy and historically unprecedented fuel price increases.
The general creditworthiness of the U.S. airport sector remains strong, but the negative trends identified last winter in its 2008 Airport Sector Outlook have worsened, Moody's said in its latest report, which is a six-month update to the Feb. 12 outlook.
"We expect substantial enplanement declines and a potential for weakening credit strength across the sector as a result of airline service reductions due to the strong recent inflation in jet fuel prices," said Kurt Krummenacker, assistant vice president and Moody's lead analyst for the airport sector, in outlining the factors leading to the outlook change.
Additionally, Krummenacker cited the stagnating economy and inflationary pressures that are cutting into consumer purchasing power for airline travel at the same time as the airlines need to raise fares and service charges. Further exacerbating the situation is the increased potential for airline bankruptcies that could be induced if fuel prices remain high and domestic airlines remain unable to recover higher operating expenses through airfares and other fees.
The ratings agency noted that factors such as lower enplanement levels adversely affect airports because fewer passengers will be spending at non-airline businesses on airport premises, such as food concessions, car rentals, and parking -- all necessary to fund the operating costs of the airport. Depending on the type of agreements the airlines and airport maintain, this can lead to higher costs for the airline and/or the airport, Moody's said.
Airports most at risk for negative credit impacts are smaller ones with limited air service and high leverage or inflexible capital plans that require additional debt, the report said. Moody's rates 91 airports in the U.S. with a median rating of A2.
Moody's outlook, which outlines the rating agency's expectation for the fundamental credit conditions for U.S. airports over the next 12 to 18 months, is titled "2008 U.S. Airport Sector Outlook: Six-Month Update."
