Key Takeaways
- We expect traffic will continue to grow for airports in Latin America, albeit more slowly after the impressive recovery since the height of the pandemic.
- Airports' financial metrics could come under pressure due to investments in infrastructure and environmental sustainability amid high interest rates, after tightening budgets earlier in the pandemic.
- In many cases, our ratings on airports in the region are linked to those on respective sovereigns, making sovereign rating actions a crucial factor in rating changes on the airports.
We expect traffic growth for airports in Latin America will slow to about 3x the region's GDP growth rate after the impressive recovery since the height of the pandemic. However, higher air traffic in countries such as Brazil and Mexico, the region's expanding middle class, and increased routes from low-cost carriers--allowing more people to afford air travel--will keep demand high.
Our forecast also considers strong demand from the U.S., especially for tourism; gradually stabilizing economies in Mexico and the Caribbean; and most regional airports to continue expanding above pre-pandemic levels. Air traffic has recovered since the early part of the pandemic, especially for tourism-related destinations, as airports developed new infrastructure and domestic travel remained resilient. During 2023, traffic volume grew on average 18% for the airports we rate in Latin America, significantly outpacing local economic activity with aggregate GDP growth of 1.8% in the year.
At 2x GDP growth, our traffic expectation for the region is similar to that for the U.S. but exceeds those for peers in Europe and Asia-Pacific, where we don't expect a full recovery until 2024. We expect an even slower recovery for business passenger volume in Europe, which we believe is unlikely to recover anytime soon (see "European Airports Trundle Along," May 13, 2024).
Chart 1
Some other factors that we expect will contribute to air traffic growth for the coming years:
- The presence of new low-cost carriers, such as Dominican Arajet and Colombian Wingo, as well as new and more frequent low-cost routes sharply reduced ticket costs, especially for domestic and short routes.
- Air travel becoming more popular due to the region's insufficient transportation infrastructure, for example, the absence of connecting railways; the narrowing gap between flying costs and those of alternative transportation methods; and security concerns with road transportation.
Risks To The Sector
Although we expect traffic to remain strong, we continue to monitor the following risks for the sector:
Chart 2
Traffic Growth To Diverge By Country
We expect air traffic growth in the region to increase by 2% in 2024 and 9% in 2025, but the pace in the underlying countries will diverge. The distinct variation reflects our expectation that 2024 passenger volume will contract 2% for Aeropuertos Argentina 2000 S.A. (AA2000), related to the contraction of the local economy, and 4% for Mexico's Grupo Aeroportuario del Pacifico S.A.B. de C.V. (Gap) due to lower fleet availability.
This counterbalances our growth expectations for other rated airports; for example, we expect 11% traffic growth for Aeropuertos Dominicanos Siglo XXI S.A. (Aerodom), still boosted by tourism from North America. On the other hand, our forecast for stronger average total traffic growth in 2025 incorporates increases in line with aggregate GDP growth of 2.3%, boosted by Panama's Aeropuerto Internacional de Tocumen S.A.'s investments to increase the airport's capacity and in the fleet of Copa Holdings S.A.
Chart 3
Investment To Spike
We expect investments to jump in the coming years to make up for postponed capex and concession renewals. We believe completed and planned expansions will enlarge airports' capacity to handle passengers, boost their commercial revenue through additional rental spaces. Some airports are also installing solar panels to provide energy and implementing water management programs, which we view positively from a credit perspective as we expect these will also contribute to efficiency gains.
Increased terminal and runway space aims to support passenger capacity
Air passenger and cargo growth has weighed on airport infrastructure. Airports are now focused on expanding and modernizing existing facilities--primarily by expanding terminals and runways in major cities. However, some countries may not be able to adequately address future air transport demand given the lack of space adjacent to airports.
Several countries have started major airport expansion projects, which we expect will boost the operators' capacity and create new opportunities for airport-related businesses. For instance, Brazil is investing heavily in its main airport, Sao Paulo-Guarulhos International Airport, while Mexico inaugurated the Aeropuerto Internacional Felipe Angeles in Mexico City in 2022, as well as a new airport in Tulum.
In addition, the concession renewal of Aerodom's six airports until 2060 comes with mandatory capital expenditure of almost US$830 million over the next 30 years. This includes US$250 million before 2029 related to the new terminal at the Las Americas International Airport in Santo Domingo, which we expect to increase the airport's capacity by 4 million passengers from its current capacity of 6.5 million.
We believe this spike in investments will be mostly financed via generated cash flow, while future debt issuances for rated airports will mostly be used to repay existing debt, with no material incremental debt to finance expansion investments and no material debt maturities in the short term.
Some already concluded expansion projects include AA2000's US$230 million investment to add a 50,000-cubic-meter (m3) terminal to Argentina's Ezeiza airport, which the company expects to work solely on renewable energy. In 2022, Tocumen added a terminal of around 135,000 m3 and 20 new gates for around US$900 million, which it expects to increase annual passenger capacity by 13 million.
Planned expansions for airports in the region include:
- The Santiago International Airport, where Chile's Ministry of Public Works plans to increase capacity up to 100 million passengers per year. The airport's concessionaire, Nuevo Pudahuel, inaugurated a new international terminal last year that required an investment of US$900 million.
- The new Jorge Chávez International Airport in Lima, Peru, is expected to begin operations in December 2024. It will cost US$2 billion dollars to replace the old airport and aims to serve 30 million passengers a year.
- In Brazil, we expect continued investments in regional airports, in line with the commitments from Brazil's airport privatization process (2019-2023). For example, CCR S.A. has already invested R$706 million in the first quarter of 2024 to retrofit and expand its regional terminals, aiming to create demand through new routes (21 passenger routes and 7 cargo routes added in 2023) and boost commercial revenue.
Expanding commercial space aims to boost revenue
We expect commercial revenue to continue to recover with passenger volume. Income from duty-free shopping, restaurants, parking, and food and beverage spaces increased, and in some cases, outpaced passenger volume in 2023.
Such revenue may become more significant for Gap and Aerodom, as their upcoming investments tend to focus on adding commercial areas and changing layouts to increase average consumption per passenger. As such, we expect Aerodom's commercial segments will remain a key source of cash flow for the airport, as it represented close to 30% in 2023.
What is more, we have recently seen an increase in green bond issuances, which were well received by investors. These have incorporated energy saving plans by installing solar projects, water management programs, pollution prevention and control initiatives, and energy efficiency measures.
Chart 4
Increased Shareholder Distributions Will Be Manageable
Along with higher capex needs, we also expect higher shareholder distributions in the form of dividend payments or share repurchases, which were largely reduced in the first years of the pandemic to preserve cash.
Nonetheless, most airports we rate have sound leverage and liquidity. We believe this, along with our expectation of continued growth in traffic volume, will give them the flexibility to absorb this short-term increase in debt and interest payments.
Table 1
Will contributors to airport revenue return to the pre-pandemic status quo? | ||||||
---|---|---|---|---|---|---|
Return to status quo | New reality | |||||
Leisure passengers | Was the main driver of traffic recovery, but should gradually return to previous dynamics. | |||||
Business passengers | Expected to have the slowest recovery and could even be weaker than pre-pandemic levels. | |||||
Cargo revenue | During lockdown, this segment was key for generating operating cash flow, but as passenger traffic recovers, the importance of this segment on overall revenue should return to pre-pandemic levels. | |||||
Commercial revenue | We expect an increase in commercial revenue due to increased investments in commercial areas that would bolster average passenger spending. | |||||
Operating margins | Increased operating margins for some airports will be short lived, as traffic recovers and cost-saving mechanisms implemented during the pandemic will no longer be feasible. | |||||
Capex | The pandemic postponed planned capital investments as airports held onto liquidity to withstand lockdowns. However, as airports catch up with their investments, we expect capex to return to pre-pandemic levels. | |||||
Source: S&P Global Ratings |
This report does not constitute a rating action.
Primary Credit Analyst: | Juan Barbosa, Mexico City (54) 114-891-2108; juan.barbosa@spglobal.com |
Secondary Contacts: | Daniel Castineyra, Mexico City + 52(55)5081-4497; daniel.castineyra@spglobal.com |
Diana laura Flores, Mexico City +52 5550814489; diana.laura.flores@spglobal.com |
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