As soaring fuel costs lead more airlines to cut back on flights, US airports may have to begin trimming bond-financed projects that were based on forecasts of flight increases, analysts said.
"I think we expect airport operators to look at projects that are less essential or adjustable," said Kurt Forsgren, an airport analyst at Standard & Poor's Ratings Services.
He said airports and airlines were both operating in "unchartered waters" due to escalating fuel prices and the resulting impact on travelers.
Fewer flights will mean less revenue for airports, which can try to recoup the losses by adjusting fees, and as a result do not face the same immediate credit concerns as airlines, analysts said.
Commercial airports face USD$75.5 billion in spending on capital projects such as terminals and runways by 2011, with 53 percent of that amount concentrated in large hubs, according to a May 2007 report by Airports Council International-North America.
Continental Airlines became the latest carrier to turn to flight cuts last week when it announced a downsizing of its fleet and a plan to reduce domestic flights by 16 percent in the fourth quarter of 2008. That followed similar moves by United Airlines and American Airlines.
The main culprit is the cost of jet fuel, which Continental said was about 75 percent higher than a year ago.
Some large airports, such as Chicago's O'Hare, Washington's Dulles and Miami, are in the throes of major projects, according to Peter Stettler, an airport analyst at Fitch Ratings.
He said that for those airports changes at this point would be expensive, while airports could try to economize on projects just coming into fruition before proceeding further.
Cash-strapped airlines, which need to sign onto projects and help pay for them, may also try to push off the work into the future, he added.
Chicago, for example, is in the first phase of a massive project to add, relocate and extend runways along with other improvements. The estimated price tag for the entire project is USD$8.2 billion, with the city tapping general airport revenue bonds, passenger facility charges and federal airport funds for financing.
Rosemarie Andolino, the project's executive director, said talks are ongoing with airlines with an eye toward the second and final phase. She added that if the runway improvements were already in place, they would save carriers USD$400 million annually in fuel lost to delays.
"At the end of the day, we have to have a facility that moves people and goods," she said.
Both S&P's Forsgren and Fitch Ratings' Stettler said airports should take a long-term view for their capital projects and continue to work on improvements that will be needed in the future.
Apart from major capital projects, Stettler said Fitch will be looking for cost-cutting measures in airports' budgets.
"We will expect revenue... landing fees to decline in relationship to the decrease in flight activity," he said.
The biggest impact from the flight cutbacks will be on smaller airports, which may see traffic decreased or even eliminated, but which may not have revenue bonds outstanding, Stettler said.
Airports also have the ability to adjust their landing and other fees, including lucrative parking fees, to offset lower revenue, Forsgren said.
He added that while S&P has placed all the airlines on a watch list for possible rating downgrades, airports still have a stable outlook.
