An interesting appraisal by Arcadis UK's Global Aviation Investment Director, Crawford Burden, on COVID-19 impacts and recovery scenarios for both airlines and airports. The headwinds created by the crisis will result in structural change for the sector and a consequential impact on long term growth rates.

1. GLOBAL AVIATION
COVID 19 IMPACT AND RECOVERY SCENARIOS
April 2020

2. © Arcadis 2018
INTRODUCTION
• In this briefing paper we set out our understanding of the
impact of the COVID pandemic on the Airline and Airport
industry, looking to answer the following fundamental
questions:
• What has been the impact to date and how has it
manifested itself as the virus has spread.
• What are the potential recovery scenarios, short
term and long term.
• What are the implications for airports.
• What mitigation strategies are open to airport
operators to minimize the impact.
• These are unprecedented times with no clear answers, but
where possible we have looked to previous shocks as a
guide to the potential impact during this crisis.
• Our analysis has been undertaken jointly between Arcadis
and Aviation Economics, utilizing a variety of industry
sources overlaid with our own expert analysis and insight.
• It should be noted that the views expressed in this paper
are those of the authors, and do not necessarily reflect the
house view of either Arcadis or Aviation Economics.
• We hope you find this paper useful, interesting and
insightful, and should you have any follow up questions or
wish to discuss further please don’t hesitate to contact us.
• Stay well and stay safe.
m +44 (0)7789 170275
e crawford.burden@arcadis.com
Arcadis
Arcadis, 34 York Way
London N1 9AB
United Kingdom
CRAWFORD BURDEN
Director
Global Aviation Investment Advisory Leader
m +44 (0)7767 823448
e tim.coombs@aviationeconomics.com
Aviation Economics
3rd Floor, 2 Stephen Street
Fitzrovia
London W1T 1AN
United Kingdom
TIM COOMBS
Managing Director

3. © Arcadis 2018
PANDEMIC TIMELINE
Global cases increase from 1 to 1 million in 93 days. Deaths in Italy and Spain appear to be plateauing. China reports 70 days between
first and last new local case.
31st Dec 2019
First reported in
Wuhan, China
22nd Jan 2020
Wuhan closes
airport
30th Jan 2020
WHO declare a
public health
emergency
11th Mar 2020
WHO declare a
global Pandemic
19th Mar 2020
China reports no
new locally
transmitted cases
27th Mar 2020
US and Italian
cases exceed
China
2nd April 2020
Over 1m cases
recorded globally,
50k+ deaths
8th Apr 2020
Wuhan airport to
re open
3,309
15,887
3,603
12,641
8,093
183
1,576
9,562
4,943
1,7711,447
10
100
1,000
10,000
Day1
Day3
Day5
Day7
Day9
Day11
Day13
Day15
Day17
Day19
Day21
Day23
Day25
Day27
Day29
Day31
Day33
Day35
Day37
Day39
Day41
Day43
Day45
Day47
Day49
Day51
Day53
Day55
Day57
Day59
Day61
Day63
Day65
Day67
Day69
Day71
Day73
Day75
Numberofdeaths
China Italy Iran Spain France South Korea Germany USA UK Netherlands Belgium
COVID-19. Growth of Deaths in the most affected countries and South Korea. Logarithmic Scale
Base of 10 deaths on Day 1 up to 5th April 2020 March.
Source: John Hopkins University, GlobalData

4. © Arcadis 2018
IMPACT
• Travel restrictions are shutting down international
aviation markets with severe restrictions covering
98% of global passenger revenues, as shown in the
map opposite.
• In response airlines have implemented severe fleet
capacity reductions which has resulted is a
significant decline in the number of daily flights.
• Analysis undertaken by the COVIDAirlineTracker
provides a snapshot of general capacity cuts by
airline and region.
• We have used this data and mapped in the lower
right map, ranging from red indicating 100% capacity
reductions (UK), to green with 45% capacity
reductions (Mexico).
• The reductions closely mirror the spread of the
disease.
• China and East Asia are starting to see a
relaxation of travel restrictions as the level of
infections reduce and domestic quarantine
measures are relaxed.
• Most of Europe is red reflecting a complete
withdrawal of capacity as countries go into or
remain in lockdown.
• North America has been slowest to respond as it
has been at an earlier stage in the infection curve.
It is likely that this will also turn red in the short
term.

5. © Arcadis 2018
IMPACT
• The impact of the travel restrictions is also clearly
demonstrated in the chart below which shows the sharp
decline in the total number of daily global flights since the
WHO declared the Covid-19 outbreak as a global
pandemic.
• The charts to the right show the impact on an individual
airport basis for a selection of airports around the World
for the month of March.
• Reflecting the progress of the virus from East to West,
Chinese and Japanese airports have already recovered
some capacity but are still significantly below normal
levels in China. European and ME airports have virtually
closed down, and US airports are quickly following suit.

6. © Arcadis 2018
OVERALL CAPACITY IMPACT
• In April 2020 the total of available monthly capacity for all
scheduled airlines in the OAG dataset has declined by 271.9m
seats from 469.6m seats in April 2019 to 196.6m in April 2020. A
year on year monthly decrease of 58%.
• In February 2020 there was a 5% decline compared to
February 2019.
• In March 2020 there was a 19% decline compared to
March 2019.
• The data indicates a rapid V shaped recovery over May and June
however, it should be noted that the data is extremely fluid, and
the majority of airlines will not have made their final plans for
operations from May 2020.
• The actual recovery curve will be very much dependant on the
relaxation of travel restrictions and is likely to be more U shaped
in nature.
• Chinese airlines suffered the greatest negative impact in
scheduled capacity in February 2020 with a decline of 30.7m
seats compared with February 2019. The year on year decrease
in monthly seats has lessened slightly in March and April 2020.
• All other regions have seen the greatest reduction in seats in
April 2020 as travel restrictions have been imposed in many
countries around the world.
• Europe has been the epicentre of the pandemic since mid March
2020 with the 33 largest European airlines together scheduling
82.8m less seats than in April 2019.
• North American airlines have scheduled 52.6m less seats in April
2020.
• All regions seem to indicate a recovery in capacity in May,
although it is probably too early to say if this will be realised.
Covid-19 Impact – Comparison of total seats year on year monthly change
2020 v 2019
13.9m
-21.0m
-88.8m
-271.9m
-106.9m
-33.3m
3%
-5%
-19%
-58%
-22%
-7%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
-300m
-250m
-200m
-150m
-100m
-50m
0m
50m
Jan 20 v 19 Feb 20 v 19 Mar 20 v 19 Apr 20 v 19 May 20 v 19 Jun 20 v 19
YonYMonthly%Change
YonYMonthlyChangeinSeats
2020 v 2019 - Seats 2020 v 2019 Y on Y % Change
-30.5m
-1.7m
0.8m
2.9m
0.4m
2.7m
5.0m
2.4m
0.4m
0.1m
-26.6m
-9.7m
-6.3m
1.3m
-4.2m
-23.8m
-2.0m
-1.2m
-1.1m
-1.0m
-24.1m
-13.7m
-15.8m
-4.1m
-14.4m
-83.5m
-52.6m
-18.8m
-3.3m
-7.2m
-14.9m
-5.0m
-6.5m
2.5m
-7.6m
-20.8m
-29.4m
-3.3m
-0.4m
-4.8m
-100m
-90m
-80m
-70m
-60m
-50m
-40m
-30m
-20m
-10m
0m
10m
YonYMonthlyChangeinSeats
Feb 20 v 19 Mar 20 v 19 Apr 20 v 19 May 20 v 19
Covid-19 Impact – Comparison of total seats year on year monthly change
2020 v 2019 by region
Source: OAG

7. © Arcadis 2018
MAJOR AIRLINES CAPACITY IMPACT
• In 2019, 125 airlines offered at least 10m annual seats. These
airlines provided 4.8bn annual seats, 83% of total global
capacity. Most of these airlines will be providing OAG with
regular changes in schedules.
• In April 2020 the total of available monthly capacity for the top
125 airlines has declined by 237.5m seats from 391.2m seats in
April 2019 to 153.7m in April 2020. A year on year monthly
decrease of 61%.
• In February 2020 the 18 largest Chinese airlines offered just
less than half the capacity compared to February 2019. In April
2020 Chinese airlines’ capacity is down 41% compared to April
2020.
• In April 2020 capacity has been reduced by 82% by the 33
largest European airlines and by at least 75% by the largest 8
Middle East airlines, 10 largest Latin American airlines, 4
largest African airlines and 4 largest Australasian Airlines.
• The 28 largest airlines in North East and South East Asia and
the 12 largest airlines in North America have halved their total
capacity in April 2020 compared with April 2019.have 50%.
Covid-19 Impact – All scheduled airlines with over 10m annual seats in 2019
Comparison of total seats year on year monthly change 2020 v 2019
Covid-19 Impact – All scheduled airlines over 10m seats in 2019 by domicile region
Comparison of total seats year on year monthly % change 2020 v 2019
14.6m
-17.5m
-74.6m
-237.5m
-90.2m
-23.4m
4%
-5%
-19%
-61%
-22%
-6%
-65%
-60%
-55%
-50%
-45%
-40%
-35%
-30%
-25%
-20%
-15%
-10%
-5%
0%
5%
-260m
-240m
-220m
-200m
-180m
-160m
-140m
-120m
-100m
-80m
-60m
-40m
-20m
0m
20m
Jan 20 v 19 Feb 20 v 19 Mar 20 v 19 Apr 20 v 19 May 20 v 19 Jun 20 v 19
YonYMonthly%Change
YonYMonthlyChangeinSeats
2020 v 2019 - Seats 2020 v 2019 Y on Y % Change
-52%
-7%
3%
2%
3%
6%
10%
10%
1%
-44%
-37%
-20%
9%
-20%
-25%
-2%
-5%
-24%
-10%
-40%
-53%
-50%
-30%
-75%
-83%
-52%
-75%
-73%
-75%
-24%
-19%
-20%
-40%
-19%
-28%
-13%
-10%
-52%
-100%
-90%
-80%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
YonYMonthly%Change
Feb 20 v 19 Mar 20 v 19 Apr 20 v 19 May 20 v 19
Source: OAG

8. © Arcadis 2018
POTENTIAL RECOVERY SCENARIOS
• There are three potential recovery scenarios envisaged, V shaped, U
shaped, or L shaped.
• The shape will depend on the duration of the virus and the length and
severity of the resulting shut down.
• The charts opposite show the impact of previous crisis events on the
aviation industry as measured by passenger traffic.
• The terrorist attacks of 9/11 resulted in an immediate reduction in air
travel as a result of the complete shutdown of the US commercial
aviation system. In the 4-5 months following 9/11 there was a large
temporary impact which reduced travel demand by over 31%. But once
this transitory impact had dissipated travel demand (US domestic
RPMs) remained 7.4% lower than the level expected given factors such
as lower economic growth and air fares. Studies have concluded that
factors such as the increased ‘hassle’ of travel due to new security
requirements has permanently reduced the level of travel demand by
over 7%. This resulted in a L shaped recovery as demonstrated in
the upper chart.
• During SARS, airlines based in the Asia Pacific region lost 9% of their
annual RPKs, resulting in a 5.1% decline in RPKs in 2003 compared to
the prior year. The low point of demand occurred after three months,
and traffic recovered to pre-crisis levels after six to seven months
resulting in a V shaped recovery as indicated in the upper chart.
• According to IATA the downturn in passenger demand during the GFC
was not especially deep; the peak-to-trough decline in revenue
passenger kilometres (RPKs) was less than half that seen following the
SARS outbreak in 2003, for example (6.3% versus 15.8%). However,
where the GFC downturn did differ was in its duration – it took 12
months for RPKs to reach their trough, compared to just five months
post-SARS, and where RPKs had quickly regained their pre-SARS
trend level by late-2003, sluggish economic conditions post-GFC meant
that RPKs didn’t surpass their pre-crisis trend level until late-2016. This
resulted in a prolonged U-shaped recovery
Source: Airports Council International
Source: Airports Council International

9. © Arcadis 2018
POTENTIAL PANDEMIC SCENARIOS
• The shape of the recovery in the aviation market will very much depend on the international and national response to the virus, the
degree of lockdown, and the length and severity of the corresponding travel restrictions.
• Management Consultancy Oliver Wyman has identified three potential virus duration scenarios as outlined below.
• Each scenario has a corresponding economic impact which will be reflective of the impact on the airline and airport industry and
whether or not it will be a V, U or L shaped recovery, or a hybrid combination thereof.
Scenario 1:
2-3 months
• Public health officials enact aggressive
containment and ring-fencing
measures to contain localized
outbreaks (e.g., Northern Italy, Seattle
(USA), New Rochelle (USA)) akin to
standards set by China or Singapore
• Population largely complies with public
health directives, slows human-to-
human transmission
• New case rates spike with initial
outbreak in a region and increased
testing, but level off within 6-8 weeks;
catch a break with seasonality, by late
May we see far fewer new cases.
• Q1 Earnings dented, but swift recovery
allows companies to return to normal
in Q2
Scenario 2:
6 months
• Virus proves not to be seasonal
• Uneven compliance with public health
directives and containment measures
fail to contain spread
• New case rates continue to increase
into Q2, but virus becomes less
transmissible the more it spreads,
eventually “dies out”
• Public begins to calm down as
mortality rates decline despite rising
new cases (likely Q2)
• Vulnerable industries experience a fall-
off in demand into Q2 and Q3 and take
measures to stabilize balance sheets
and ensure liquidity
• Pace of growth slows in impacted
countries
Scenario 3:
12+ months
• Number of new cases rises, drops off
for summer but rises again in the fall,
suggesting virus is seasonal and
endemic
• Public health efforts are unable to
contain outbreak; virus spreads widely,
affecting ~20-60% of adult population
in next 2 years
• Mortality rates do not decline, keeping
public in heightened state of anxiety
• Drops in demand (consumer
confidence, access to supply, part-
time/ gig economy workers with less
discretionary income) cause growth to
slow into Q4
• Companies in particularly vulnerable
industries (travel, energy, hospitality)
require additional liquidity, trigger a
broader corporate debt crisis that
central banks struggle to contain
U shaped recovery U+L shaped recoveryV shaped recovery

10. © Arcadis 2018
• Analysis from IATA and HSBC assumes a similar
recovery pattern with significant demand reductions in
Q2, peaking in April and recovering thereafter, with
capacity back to near normal levels by the end of the
year.
• In line with ACI analysis IATA predicts that the resulting
recession will prevent a V shaped recovery.
• Their predictions assume three months of lock down and
then gradual recovery. Over this period passenger
demand is forecast to fall by more than capacity is cut,
with industry wide load factors expected to gradually
recover towards year end.
• Cuts in capacity are expected to be sharpest in Europe,
the Middle East and Latin America, with an overall
reduction in global revenue passenger kilometres (RPKs)
of circa 40%.
• HSBC have assumed a 30% traffic drop in European
traffic in 2020 which assumes a three-month grounding
of aviation, but a relatively rapid resumption of service in
the summer.
• The duration of the bottom of the market will be very
much dependant on the length and extent of the
respective country lock downs, and the nature of the ‘exit
strategy’.
• With each passing day the seriousness of the virus and
enormity of the crisis is reinforced, and despite several
country’s looking like they are beyond peak deaths, it
may take some time for restrictions to be lifted if a
second wave is to be avoided.
• The situation in China may give some insight into the
potential recovery profile elsewhere.
SHORT TERM OUTLOOK
Most commentators expect a short term U shaped recovery
Source: IATA Economics
Source: HSBC

11. © Arcadis 2018
• Whether it is a V or a U in the short term will depend on the duration
of the lockdown across the world.
• As a possible indicator for how things might play out we can look to
China.
• In China 70 days elapsed between first case being reported and last
new local case reported. Wuhan (the epicentre of the outbreak)
airport was closed 3 weeks after the first case, for a duration of 77
days, and plans to re-open 4 weeks after the last reported new local
case.
• Analysis of total weekly scheduled capacity in China from November
2019 to April 2020 shows that the peak for available seats was 19.4m
seats in the week ending 19th January. 15.2m domestic seats (78%)
and 4.3mm international seats (22%).
• From the first week in February the Chinese government introduced
quarantining and travel restrictions to control the spread of the virus.
• By the week ending 23rd February total published capacity had fallen
to 5.1m a decline of 74%.
• Since the beginning of March there appears to be a recovery in
domestic seat capacity with 11m weekly seats scheduled in the last
week of April although still 28% less than the 15.2m seats in the peak
week in January.
• International capacity has continued to decline with just 0.3m seats
per week in April as border controls remain in place.
• Generally it is expected that air travel demand will return as follows:
• Domestic demand will rebound first and fastest.
• Leisure and business demand will respond quickly as travel
restrictions are lifted, reflecting pent up demand and the fact
European airlines have not been refunding cancelled flights.
• International will be the slowest to respond dependent on the lifting
of national border controls.
SHORT TERM OUTLOOK
China is a potential indicator of the short term demand recovery profile
Covid-19 Impact – China Published Weekly Scheduled Capacity
Weeks ending 10th November 2019 to 26th April 2020
15.2m
4.2m
11.0m
4.3m
0.3m
19.4m
5.1m
11.3m
0m
5m
10m
15m
20m
10-Nov
17-Nov
24-Nov
01-Dec
08-Dec
15-Dec
22-Dec
29-Dec
05-Jan
12-Jan
19-Jan
26-Jan
02-Feb
09-Feb
16-Feb
23-Feb
01-Mar
08-Mar
15-Mar
22-Mar
29-Mar
05-Apr
12-Apr
19-Apr
26-Apr
TotalSeats
Domestic International Total
252
33,333
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
0
50
100
150
200
250
300
22-Jan
26-Jan
30-Jan
03-Feb
07-Feb
11-Feb
15-Feb
19-Feb
23-Feb
27-Feb
02-Mar
06-Mar
10-Mar
14-Mar
18-Mar
22-Mar
26-Mar
30-Mar
03-Apr
CumulativeDeaths
DeathsperDay
Deaths per Day
Covid-19 Impact – China. Deaths per day and total deaths. up to 5th April 2020
Sources: OAG, John Hopkins University, GlobalData

12. © Arcadis 2018
• The relative activity of the Chinese and Japanese aviation markets versus the rest of Asia and Europe is clearly illustrated in the Flightradar24
snapshot from the 7th April.
• China is clearly in recovery mode, whilst Europe is extremely quiet relative to normal levels of activity.
SHORT TERM OUTLOOK
China is a potential indicator of the short term demand recovery profile

13. © Arcadis 2018
• Many commentators are anticipating a relatively short, albeit extremely
sharp impact on air travel demand.
• ACI expects the most sever decline to happen in Q2 with peak infection
rates being reached in Europe and the US over the next few weeks and
China well into the recovery stage.
• They anticipate the lifting of restrictions in the summer with a quick initial
recovery and then a longer tail, with full recovery to pre crisis levels by the
end of 2021.
• This U-shaped recovery in the short term, and L shaped recovery in the
longer term, is similar to that experienced post 9/11. Key rationale behind
this assumption is as follows:
• The world economy is currently in recession with a loss of income and
a rapid rise in unemployment as a result. There was a period of
economic recession post 9/11.
• A potential loss of consumer confidence – to some extent air travel is
associated with the spread of the virus. After 9/11 people were slow to
return to the skies due to the perceived risk from further terrorism
attacks.
• Potential structural changes as a result of the increased us of virtual
communication technologies potentially accelerating the pre crisis
trend of declining business travel. Post 9/11 this was mirrored by the
demand dampening as a result of increased security inconvenience.
• The acceleration of demand dampening as a result of the perceived
environmental impact of air travel
• The chart to the right clearly shows the L shaped recoveries post 9-11 and
GFC. In each instance growth back to previous trajectory has not been
achieved, and the new trajectory is at a lower growth rate than that achieved
pre-crisis.
• The factors as outlined above are likely to result in a similar demand profile
post COVID-19 impact.
LONG TERM OUTLOOK
9/11 recovery profile is a likely recovery scenario
Source: Airports Council International
Source: IATA Economics

14. © Arcadis 2018
LONG TERM STRUCTURAL IMPACT ASSESSMENT
• Headwinds facing global aviation demand are greater than at any time before and may result in a reduction in the long-term post crisis
growth rate.
Structural changes may reduce post crisis long term growth rates
Structural impact Description Impact
Increased use of
virtual
communication
technology
With lock downs being implemented across the world
corporations are asking their employees where possible to
work from home. To facilitate this people are turning to
online collaborative working and communication tools
such as Microsoft Teams and Zoom to facilitate meetings
that might in the past have taken place face to face.
Potential for a strong recovery for business travel due to pent-up demand created by the
lock-down orders, but also potential that the level of business travel will settle at a
structurally lower level due to rapid adoption of virtual communication tools and more
distributed teams - travel substitution trends that were well underway pre-crisis. The
Covid-19 crisis represents the largest trial-by-use period for creating remote workspaces
and virtual teamwork in the history of business. However, the value and efficacy of face
to face meetings cannot be fully replicated, especially with external clients, and thus the
biggest impact may be felt more on internal meetings and thus on domestic travel.
Environmental
impact of aviation
There has been a marked increase in pressure on the
aviation industry from the environmental lobby. This has
most recently manifest itself through more than 250 trades
unions and environmental groups signing an open letter
opposing plans for bailing out the aviation industry.
The perceived impact of flying on the environment is already having an impact of air
travel demand with the concept of ‘flygskam’ or ‘flight shaming’ appearing to take hold.
According to a survey by UBS, one in five people surveyed had cut the number of flights
they took over the last year because of the impact on the climate and UBS anticipates
that growth in passenger numbers could be halved if these trends were borne out. The
realisation of the effectiveness of virtual communication tools as an alternative to air
travel could accelerate this trend.
Reduced airline
capacity as a result
of failures and
consolidation
The impact of Covid-19 is greater than anything the airline
industry has ever had to face before. IATA has forecast a
revenue shortfall for airlines of $252bn. Cash is king and
the “best run airlines” have a combination of cash, access
to lines of credit and some unencumbered aircraft assets.
Those that don’t may end up in bankruptcy if they fail to
receive bailouts from Governments.
The credit positions of almost half of the world’s largest airlines, according to credit
profiler Ishka, can be described as either “weak” or “critical”. In the likely event that a
number of airlines fail, a material proportion of capacity could be removed from the
system. Whilst some of this capacity will be taken up by the remining carriers, it is likely
that there will be a short-term capacity gap which may hold back the recovery in the
market. Industry consolidation would inevitably result in the removal of marginal
capacity.
Airline fleet
restructuring
As airlines build back up their route networks they are
likely to focus on those with the greatest profitability, and
deploy their most efficient fleet first. This may see the
accelerated retiral of larger older aircraft models in the
fleet (B747-400s and A340s for example), and an
increased focus on point to point routes using new narrow
body long range aircraft such as the A321 LR and XLR.
Changes in fleet types on key routes is likely to result in a drop in capacity, at least in
the short term, until underlying demand has recovered to a point where larger aircraft
types can be justified.

15. © Arcadis 2018
• The rapid and widening spread of the coronavirus (COVID-19)
outbreak, the deteriorating global economic outlook, falling oil
prices and asset price declines are creating a severe and
extensive credit shock across many sectors, regions and
markets. The combined credit effects of these developments
are unprecedented.
• The airport sector is among the most significantly affected by
the shock given its exposure to travel restrictions and
sensitivity to consumer demand and sentiment.
• The top table opposite summarises ACI’s projections for FY20
traffic post Covid-19 impact. Taking into account the one-
quarter decline in passenger traffic in the first quarter and
substantial traffic losses in the second quarter, global
passenger traffic will lose close to two-fifths (38.1%) as
compared to the forecasted figure, equivalent to 3.6 billion
passengers in absolute terms.
• ACI forecasted that, prior to the COVID-19 outbreak, global
airport revenues for the first quarter of 2020 would reach close
to $39 billion.
• Based on traffic trends under COVID-19 and the inevitable
reduction in the overall commercial activity, ACI now estimates
a -33% loss of revenues equivalent to an approximate revenue
shortfall of $13 billion.
• Based on the estimated traffic figures for the full year 2020,
ACI has extended its revenue impact assessment (bottom
table). While the industry was expected to generate about $172
billion at current market exchange rates and assuming flat
evolution of unit revenues, it is currently forecast to lose about
45% or over $76 billion by the end of this year as a result of the
ongoing crisis.
IMPLICATIONS FOR AIRPORTS
ACI forecasts a 45% decline in global airport revenues in 2020
FY20 Passenger volume projections – pre and post Covid-19 (millions)
Source: ACI
Q1 Airport revenue projections – pre and post Covid-19 ($m)
Source: ACI
FY20 Airport revenue projections – pre and post Covid-19 ($m)

16. © Arcadis 2018
AIRPORT RECOVERY STRATEGIES
• As substantial fixed infrastructure businesses airports are generally characterised as
having a fixed cost business model.
• This reflects the fact that the cost base, comprised of operating expenditure,
expansion and replacement capital expenditure, are predominantly fixed in nature,
with changes marginally correlated to passenger throughput.
• By contrast, revenues, as indicated in the schematic opposite, are almost entirely
variable, correlated directly with passenger throughput.
• This leads to strong economies of scale benefits and profitability improvement during
periods of passenger growth, but can lead to dramatic drops in profitability during
downturns and crisis as revenues decline almost immediately, whilst the cost base
remains largely fixed.
• Reflecting this, and as highlighted by ACI, airports are expected to experience a
dramatic decline in revenues and profitability in FY20 as a result of the Covid-19
outbreak. However, airports are not without levers to mitigate these impacts.
• Revenues: Aero revenues are directly linked to aircraft movement and passenger
throughput with few mitigating strategies to alleviate the impact. Non-aero
revenues are to some extent mitigated by minimum guaranteed payments, but
these will be subject to Force Majeure clauses which are likely to have been
activated in the current crisis.
• Staff costs are the key variable cost within overall operating expenditure and can
account from between 20-50% of total opex depending of the level of outsourcing
& state responsibilities. These costs can be adjusted reasonably quickly.
• Non staff Infrastructure related costs are largely fixed linked to facilities
maintenance, heating and lighting. Airports with multiple terminals can adjust this
cost base by consolidating all operations into a single terminal. Others can
consider mothballing parts of the terminal where practically possible to do so.
• Expansion capex can quickly be either cancelled, postponed or re-profiled and
this has been quickly enacted at UK airports in particular.
• Maintenance capex can also be scaled back, but some airports may see the lull
in activity as an opportunity to undertake essential maintenance, especially in
areas that are normally operationally critical and active.
Airport
Aero Revenues
Variability index
High Medium Low
Non-aero
Revenues
Revenues in
Operating
expenses
Capex/Repex
Cost out
This crisis will be a real test of the resilience of the airport business model