The airport infrastructure opportunity

By David Kenny
Principal Sydney, Australia

From the first manned flight in 1903 to today, the world has witnessed the rapid ascent of air travel, a trend that has accelerated in recent decades.

In 2017, the International Air Transport Association (IATA) said 4.1 billion passengers travelled on scheduled services as lower airfares and improved global economic growth drove more travel. Airlines now provide services to 20,000 city pairs – double the number in 1995. Back in 2000, the average person flew once every 43 months; by 2017 they were on a plane every 22 months1.

The good news is that rapid growth is expected to continue, with the IATA’s 20 Year Air Passenger Forecast report suggesting passenger numbers could double to 8.2 billion in 2037 based on present trends and an unchanged policy framework2.

And growth could surge even more if Governments implement policy stimulus and market liberalisation.

Passengers graph

Infrastructure not keeping pace

But the IATA has warned that the aviation industry faces an “infrastructure crisis”. “The world stands to benefit greatly from better connectivity,” says Alexandre de Juniac, IATA’s Director General and CEO. “However, at this rate, airports and air traffic control will not be able to handle demand. Governments and infrastructure operators must strategically plan for the future. Decisions made now will have an impact on the value created by aviation for their regions,” said de Juniac.

The dual tailwinds of a massive growth in passenger numbers and the infrastructure gap is creating a huge need for new investment in airports. According to a 2017 McKinsey report, the world will need to spend some $US2.1 trillion on airports between 2017 and 2035 to cater for this growth. Some 63% of that investment will be in emerging market jurisdictions3. The IATA forecasts some $US1.2 trillion to $US1.5 trillion will need to be spent on airport development by 20304.

Unfortunately, Government abilities to fund this infrastructure development, including airports, is constrained, particularly in the wake of the global financial crisis.

According to the Airports Council International, privatisations of airports have surged since 2008. Some 41 per cent of airports in Europe were fully or partially privatised in 2016, up from 22 per cent since 20105.

The opportunity for infrastructure investors
With the ongoing surge in air travel and need for investment in airports, Government is simply not going to be able to meet the funding gap.

That gap is creating significant opportunities for investors to invest in airports and the private sector’s role will only continue to grow in importance. We believe that in the wake of these opportunities, more investors should be considering the benefits of investing in airports.

Airports not only provide investors with strong defensive characteristics, helped by favourable Government regulations, but they make positive contributions to both local and national communities and economies. And most importantly, as travellers continue to criss-cross the world in increasing numbers, new and exciting opportunities are emerging for investors.

Airports, however, are complex businesses operating in complex and dynamic environments and investors should consider investing via sophisticated managers with deep experience in managing these risks and driving performance at significantly sized airports.

1 International Air Transport Association
2 IATA forecast predicts 8.2 billion air travellers in 2037
3 McKinsey Global Institute, Bridging infrastructure gaps: Has the world made progress?
4 International Air Transport Association
5 Airports Council International Europe

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Important notes

While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) (AMP Capital) makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.
This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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