Study says airport investment will remain strong

In a landmark study released this month, the Centre for Asia Pacific Aviation (CAPA) says that airport investment around the world is strong and growing. The 2007 (second) edition of CAPA’s Global Airport Privatization report runs to 220 pages, tracks activity in more than 60 countries, and concludes that 2007 is set to continue the trend established last year when 15 major airports and airport groups were privatized: the highest number since 1998, when 21 transactions occurred.

“This activity looks set to continue in 2007, although a greater emphasis on secondary trade sales than first-time privatizations is likely,” said David Bentley, the study’s primary author.

According to Bentley, interest in airport investment is strong because – in emerging markets at least - privatization can open up domestic and foreign capital markets as a source of funding, provide independent financing of large-scale projects and reduce the financing requirements of central governments. In developed markets, it is a good way to avoid additional debt, transfer risk and/or responsibility and improve financial performance by introducing efficiencies.

"Airports offer a more robust profile than airlines,” Bentley says. “Profitability margins of 10-60 percent are routine among airport operators, while most full service/network airlines are very happy indeed to achieve 10 percent in the very best of times. This is because airports can usually anticipate costs better than airlines, are able to benefit from an often monopolistic position in the supply chain and may put to use both the terminal itself and surrounding land for a whole swathe of additional revenue earning opportunities that airlines can only dream of."

Bentley notes that there are exceptions to this rosy picture. Some small regional airports, where growth has come exclusively from the low cost sector, have experienced difficulties financing needed improvements or expansion when the returns that service the debt could not be achieved. And some low cost airlines themselves have consistently achieved margins of up to 30 percent per quarter, notably Ryanair (Ireland/UK) and Gol (Brazil).