Moody’s Investors Services has changed its outlook for the U.S. airports sector to stable, down from positive, as economic factors are expected to weigh heavily on the industry.
“Airline traffic is increasing but unevenly throughout the year, from a low base and less so than it would in a more favorable environment,” said Ursula Cassinerio, assistant vice president and analyst for Moody’s. “This baseline is then coupled with staffing shortages, high airfares, and limited disposable income, among other difficulties for passengers, creating a hindered starting line for U.S. airports in the 2023 marathon.”
Moody’s cited the economic slowdown and inflation and increased borrowing costs as contributing reasons for the outlook change, and said it expects the U.S. to be in recession by the second quarter of 2023. The ratings agency said growth in peak summer and holiday periods in 2023 will depend on airlines’ ability to add capacity.
For the airport sector, Moody’s noted the flurry of investment in airport infrastructure but said macroeconomic factors could work against the industry. “Federal grants will help some airports make much needed renovations without taking on large amounts of debt,” the report said. “But the need to use the funds in a defined period, in which inflation and interest rates are high, could lead to rushed due diligence, cost overruns, a need for airports to fill funding gaps, and other execution risks. At the same time, higher inflation and financing costs will drive airports to increase bond issuance amounts. But airports have strong cash balances, which will help them fund capital projects.”
Moody’s said a return to a positive outlook would hinge on signs that macroeconomic and business conditions are improving to a degree that would support steady, sustained passenger traffic growth during the coming 12 months. By contrast, the agency said it would consider changing the outlook to negative if it came to expect passenger traffic will decrease during the coming 12 months because of airline capacity constraints and worse-than-expected economic conditions that further weaken consumer confidence.