Fitch Ratings Reports Stormy Forecast For Some Airports In 2012


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Fitch Ratings Reports Stormy Forecast For Some Airports In 2012

By Shane Nolan

December 19, 2011 - A Securities and Exchange Commission approved statistical rating organization, Fitch Ratings, predicts flat or nominal traffic growth for most airports in 2012. The sector faces headwinds in the form of carriers restraining capacity and macroeconomic pressures.

Some are dealing with the last operational changes attributable to the mergers between United and Continental and Southwest and Airtran. Still others may feel the brunt of AMR's restructuring and route changes. On November 29, 2011 AMR Corporation filed for Chapter 11 bankruptcy protection with $4 billion in cash reserve.

The decision comes as the airline tries to "achieve a cost and debt structure that is industry competitive and thereby assure its long-term viability and ability to continue delivering a world-class travel experience for its customers," the company said in a statement.

American Airlines stated that despite the filing it was continuing normal operations. Chairman and CEO Gerard Arpey stepped down and was replaced by company president Thomas W. Horton. Overall, Fitch expects revenue growth for U.S. airports in 2012 to be between negative 0.8% and 3%. Fitch's growth projection is based on the relationship between enplanements at U.S. airports and several macroeconomic indicators and was first detailed in a Fitch special report titled "Riding the Business Cycle," published on Oct. 20, 2011.

U.S. airlines have signaled that 2012 scheduled capacity growth will remain constrained or even reduced in the face of high jet fuel costs and the potential for sluggish air travel demand growth in an uncertain macroenvironment. The AMR bankruptcy is likely to drive additional capacity discipline, as underperforming routes are cut and the carrier's fleet is rationalized in Chapter 11.  

The operational changes brought on by recent merger participants will also present some challenges. Secondary hubs such as Memphis or Cleveland's Hopkins International could suffer if their respective anchor carriers reduce or reallocate direct service to other primary hubs such as Atlanta or Chicago.

Fitch has set Memphis airport revenue bond rating at 'A+' with a Negative Rating Outlook, while Cleveland airport's revenue bonds hold an 'A-' rating, with a Stable Rating Outlook. There are also a number of upcoming slot revisions in the Washington and New York markets caused by mergers. However, their impact remains to be seen.  

The bankruptcy of AMR could be even more challenging for some airports. The impact on American's hubs is still unfolding, and Fitch will continue to assess it. However, American has a dominant market share position in a notable handful of regional airports. One is Northwest Arkansas Regional Airport, whose revenue bonds Fitch rates 'BBB', where American represents 40% of enplanements. Most of the other O&D airports rated by Fitch have exposures to American of less than 30%. No detail on the significance of this can be gleaned until American's route changes become clear in the bankruptcy proceeding.
Fitch Ratings was founded as the Fitch Publishing Company on December 24, 1913 by John Knowles Fitch. Located in the heart of the Financial District in New York City, the Fitch Publishing Company began as a publisher of financial statistics. In 1924, the Fitch Publishing Company first introduced the now familiar ?AAA? to ?D? ratings scale to meet the growing demand for independent analysis of financial securities.

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