Massive expansions underway at top domestic airports will result in increased costs to U.S. carriers and ultimately hit the wallet of consumers, according to a new report.
“Most airports will raise airline rates and charges significantly by 2021,” Moody’s Investor Service said in a report released Tuesday.
It added, “As airports increase capital expenditure, we estimate costs incurred by airlines at the top 25 airports will rise on average by 34 percent between 2016 and 2021.”
Specifically, the report forecast that Delta Air Lines would see a 39 percent increase in costs over the next five years with the airport expansions, or above the industry average. It said Delta’s costs are driven in part by redevelopment of its New York LaGuardia Airport facilities as well as upgrades at its Salt Lake City hub.
At the same time, it estimated Southwest would see a 32 percent rise in costs over the next five years while American Airlines and United Airlines would each see a roughly 31 percent increase. However, JetBlue is forecast to see the smallest rise with 27 percent over the same stretch.
Airport landing fees and rents for airlines, meanwhile, are forecast to rise 25 percent by 2021, driven in part by capital expenditures at large facilities. The increase in costs at the top-25 airports, though, is projected to exceed 30 percent during the five-year period.
“As large U.S. airports continue to set new records for passenger volumes, they are putting in place expansion plans that will lead to increased leverage in the US airport sector and drive airline partners’ costs higher, both of which are credit negative,” said Moody’s in the report authored by analysts Earl Heffintrayer and Jonathan Root.
That said, the report forecasts that airlines’ overall costs for the airport expansions will “be modest relative to their total operating expenses and to be readily absorbed, given healthy profit margins. We thus expect the projects can be accommodated without causing negative industry-wide credit pressures in either the airport or airline sectors.”
Specifically, Moody’s estimates the increase in costs that the carriers will incur over a five-year period will run between 1.5 percent and 2.5 percent of current total airline operating expenses.
“These increases are manageable and should be able to be recovered through higher fares,” the ratings agency stated.
Overall, the Moody’s report estimates $11.7 billion of fresh money will be raised this year for airport expansions and another $6.9 billion next year. Many of the projects are at dilapidated facilities that have not seen major improvements since the 1960s.
At Los Angeles International Airport, for example, a $1.6 billion passenger terminal is being built by American Airlines that will add a dozen new gates for jetliners and allow the facility to handle more passengers. United Airlines is spending just over $500 million to renovate its terminals at LAX while Delta recently moved its terminals at the nation’s second-busiest airport and is undergoing a nearly $2 billion multi-year upgrade of its facilities.
Similarly, New York’s LaGuardia Airport is undergoing a nearly $4 billion renovation that will include a new unified terminal. It is part of a 35-year lease signed with Delta that includes the construction of a new terminal to replace a 1960s-era structure.
Also, Hartsfield-Jackson Atlanta International Airport is undergoing a $6 billion expansion that began several years ago and includes a 20-year lease renewal with Delta. Airlines operating from the nation’s busiest airport will pick up about half of the cost of the upgrade.