Airports globally face long haul to recovery: S&P

S&P Global Ratings Managing Director & Transportation Sector Lead Kurt Forsgren joins Yahoo Finance’s Kristin Myers to break down why airports globally are going to face a long road to recovery.

Video Transcript

KRISTIN MYERS: As we were mentioning earlier, global travel pretty much ground to a halt as coronavirus swept across the globe. So we'll be chatting about a new report from S&P Global that shows that there is going to be a long road to recovery ahead. So we're joined now by Kurt Forsgren, S&P Global Ratings Managing Director and Transportation Sector Lead. Kurt, hopefully it works this time around.

KURT FORSGREN: I can hear you now, thanks.

KRISTIN MYERS: Great. Talk us through what the recovery for airports is going to look like going forward.

KURT FORSGREN: Yeah, sure. So I'm part of a team that looks at airports globally within S&P. And we've updated our passenger activity forecasts, or estimates, we're calling them, based on our economist's view and industry forecasts as well as actual traffic to date. And as a result, we expect the main will drop by 50% to 55% in 2020 as compared to 2019. And this is much steeper than the 30% decline we anticipated in March.

We also expect that they'll stay below pre-pandemic levels for at least through 2023, perhaps longer in some markets or in some segments, like business travel.

KRISTIN MYERS: So I'm actually glad you mentioned those segments. I was wondering, specifically, if there was any segments or even any regions around the world that were going to be harder hit than others?

KURT FORSGREN: Sure, yeah, there are certainly some regions that are more exposed to international travel. For example, there is a fair amount of work that needs to be done in terms of bilateral arrangements or other health and safety issues that need to be resolved between countries before international travel can resume its previously high levels. And this is particularly acute in parts of Europe and parts of the EU, where traveling to international destinations is an everyday occurrence. So we expect the international component to be delayed while domestic will recover slightly faster than that.

KRISTIN MYERS: How is the recovery looking in Asia? You know, we have the president, who repeatedly blames China for this virus. I'm not sure if that's going to impact travelers sentiment in wanting to travel to China and other regions in Asia. But how is the recovery looking there?

KURT FORSGREN: Well, we have, in our report, some reference to China and how it's fared. Of course, as you know, they are ahead of us in terms of the COVID-19 curve. And they have seen some recovery in their mostly domestic passenger travel market. International travel to and from China is still severely limited. And we have been encouraged by that recovery in domestic travel. But it's still quite depressed, given all the steps that's taken by the Chinese government to improve the health and safety for traveling public there.

KRISTIN MYERS: And here at home, will the recovery rely more on international travel? Or will it be, you know, domestic travel that boost those numbers there?

KURT FORSGREN: Well, clearly, the US is overwhelmingly domestic. It's usually about 80% of our total volume in the US. And so we do expect that to be coming back sooner. And there may be some limitations to that if there are additional outbreaks or other regional challenges with regard to COVID-19. But it will be driven in the US by domestic recovery, and of course, that'll be limited somewhat by the extent and duration of our recession. The airline industry is contracting a steep amount. And essentially, we are going to be at the mercy of the economy and people's willingness to travel and take those health and safety considerations into effect.

KRISTIN MYERS: Is there any chance that any airlines or airports might not make it through this pandemic?

KURT FORSGREN: Well, clearly, there's a fair amount of unknowns beyond September and when the airline's money runs out for component of their federal aid. And clearly, airports are in the passenger seat with them. They clearly depend on traffic both to support their local economies, and, of course, as operators of business, they need concession revenues generated by passengers and the payments by airlines. So it's definitely a symbiotic relationship between the two. And they are at risk, which is why we downgraded so many airports and also so many airlines since March.

KRISTIN MYERS: All right, well, we'll have to leave that there. Kurt Forsgren, S&P Global Ratings Managing Director and Transportation Sector Lead-- thanks so much.

KURT FORSGREN: Thanks, Kristin.