Thursday, December 27, 2018

The Bill Coming Due for Airlines: U.S. airports plan to invest a record amount on infrastructure projects, likely resulting in higher fees for airlines

The Wall Street Journal 
By Jon Sindreu
Dec. 26, 2018 9:55 a.m. ET

Costs are a key concern for airline investors, who have fretted about pilot shortages, union disputes and oil prices over the past year. But there’s a less obvious bill that they will likely face in 2019: Higher airport fees.

Over the past decade, air travel has grown much faster than the economy. Yet U.S. airports’ spending on infrastructure fell 24% between 2013 and 2017 compared with the previous five-year period, according to North America’s Airports Council International.

Now the infrastructure needs to catch up. Airlines, as well as local governments and federal agencies, will invest $100 billion in U.S. airports over the next five years, ACI estimates, more than at any point on record. Hub airports—those used to connect flights—will spend the most, because that’s where U.S. airlines have focused their expansion.

As a result, the fee paid by U.S. airlines to airports for each passenger will increase 19% between 2017 and 2020, a report by brokerage Cowen predicts.

Admittedly, airport costs add up to just 2% of U.S. airlines’ total costs, on average. Fuel and labor are the key expenses, contributing more than 30% each.

Yet some airlines are more exposed: Airport fees account for 4% of costs for ultralow cost carriers such as Allegiant and Spirit, which also find it harder to pass extra costs onto consumers. Meanwhile, Alaska Airlines and JetBlue are expanding in airports that are undergoing large renovations and are about to become more expensive.

There’s also the risk that the final bill ends up larger than investors anticipate, even for big legacy carriers like Delta Air Lines , United Airlines and American Airlines. Of the $100 billion of planned infrastructure spending, only 63% will be used to expand capacity, the ACI believes. That means higher investment may be needed for many years to come.

A lot of resources will go to refurbishing old terminals, which have dragged down consumer satisfaction in many of the U.S.’s major hubs. A clear example is New York’s LaGuardia Airport, which could be in a “third-world country,” as then Vice President Joe Biden said in 2014. It often ranks near the bottom of airport rankings, including a recent Wall Street Journal one.

Works to refurbish LaGuardia started in 2016 with an $8 billion budget. Costs per passenger for airlines could increase 37% by the time the works are done in 2023, Cowen estimates.

It may be more exciting to track the price of crude every day, but airline investors should also take a close look at the number of cranes around airports.

Original article can be found here ➤ https://www.wsj.com 

2 comments:

Anonymous said...

Commercial flying has become perdition. A thousand mile flight devours a day and renders us into meat puppets marching shoeless and clueless thru the chutes. I wanna a divorce from hurry up and wait commercial planes as do so many others. I am even thinking more about Elon's turbo tunnel.

Anonymous said...

How soon will the TSA security be paid for entirely by the airports/airlines? (They are part of the current partial government shutdown) How does it make sense to make taxpayers responsible for this bill? By the way, Southwest airlines uses private security at Love Field in Dallas. Private security is incredibly better and more efficient than the government TSA employees at other airports.