Moody’s downgrades 2023 outlook for European airports

Moody’s has revised its 2023 outlook on the European airports sector to stable from positive on the basis that “economic headwinds” continue to hinder the post-pandemic recovery.

‘’Although annual traffic volumes and sector profitability will continue to improve in 2023, high levels of inflation and weaker macroeconomic conditions across Europe are likely to slow the pace of post-pandemic recovery,” noted Moody’s assistant vice president,  Corrado Trippa.

In its 2023 outlook, Moody’s states that:

– Passenger traffic will continue to recover during 2023
This will be driven by propensity to travel, very limited travel restrictions and reopening of some long-haul routes. Traffic performance will remain uneven with a deviation around the 80%-85% anticipated average recovery range for our rated airports. On average, we do not expect traffic to return to 2019 levels before 2025.

– Downside risks persist as the resilience of travel demand will be tested amid weakening macroeconomic conditions
Discretionary consumer spending is likely to slow in 2023 and companies may also cut their business travel budgets, while environmental concerns surrounding air travel are growing across Europe.

– Rising operating expenses will limit EBITDA improvement across the sector
 Although profitability will continue to recover over the next twelve months, inflationary pressure on costs, coupled with moderate to low airport charge increases, will keep operating margins below 2019 levels.

While capital expenditure will increase, stronger cash flow generation will lead to a gradual reduction in debt
Following subdued investments during 2020-22, capital expenditure will increase through the end of 2023. Nonetheless, on the assumption that traffic will continue to recover and macro-economic conditions do not worsen materially compared with the current scenario, key financial metrics will improve, although remaining well below 2019 levels.

What could change our outlook
We could change the outlook to positive if passenger traffic recovers more quickly than we assume, sustained by an improvement in economic conditions, and we expect aggregate sector EBITDA to grow by more than 5% year-on year.

We could change the outlook to negative if travel demand deteriorates materially and aggregate sector EBITDA declines from current levels. For instance, this could be prompted by a deeper or prolonged recession in a significant number of European countries.