How Will Airports Keep Up With Travel Demand?

Frank Holmes  |

More than 2.7 million travelers on 44,000 flights travel across the United States each day – a figure that has increased every year since 2008. According to S&P Global Ratings, nearly 45 percent of all Americans took a commercial flight in 2018 and 42 percent of U.S. citizens now own a passport, compared with just 15 percent in 1997. Demand shows no signs of stopping, with this summer expected to set a record of 10 years of consecutive growth.

Just take a look at the chart below. Domestic air traffic has increased an average of 2.2 percent annually since 2002 – with only two years of declines in 2008 and 2009. Both domestic and international enplaned passengers set a record in 2018 for a total of more than 1 billion flyers.

Click to enlarge

How have carriers and airports kept up with passenger demand?

Carriers have added more capacity. With the exception of JetBlue Airways and Spirit Airlines, capacity as measured by seats on all domestic carriers is up from 2018. The big four airlines – United, Delta, American and Southwest – as seen in the chart below, account for more than 81 percent of domestic airline capacity.

Mainline carriers have actually decreased flights while increasing seat capacity. On the other hand, ultra-low cost carriers – such as Allegiant, Frontier and Spirit – have grown the number of flights by 91 percent. In 2013, about 29 percent of the U.S. domestic market was exposed to ultra-low cost carriers. In just five years that figure has expanded to 56 percent in 2018.

Click to enlarge

Are Airports Expanding Alongside Passenger Growth?

Along with many of the nation’s roads and highways, airport infrastructure is showing its age. Airports Council International-North America (ACI-NA) estimates that over $114 billion is needed for projects from 2019-2023 for large, medium and small airports. This figure is an increase of more than 30 percent from the 2017 to 2021 estimate.

The 30 largest airports account for 72 percent of passenger volume and 71 percent of identified capital needs – or $81.1 billion. Many of the biggest airports have enough runway capacity. The real challenge is adding more terminal space to accommodate a greater number of travelers. Kurt Forsgren of S&P Global writes that “with runway capacity largely built out at key hubs, the large majority of needs are on the landside, including terminal development and investments to move people to and through often site-constrained airports facilities.”

Click to enlarge

Airport Credit Ratings Become More in Focus

Airports are funded largely through federal airport or state capital grants, passenger facility charges (PFC) and municipal bonds secured by airport revenues from airlines fees and concessions. ACI-NA identified that over 50 percent of airport needs are for terminals. However, this type of construction is not eligible for federal grants. This means moving forward a larger proportion of airport construction will be financed through debt, making an airports’ credit rating a big focus.

Additionally, the PFC has been capped at $4.50 since 2000 – despite airports lobbying Congress to raise the tax. Although this charge did generate $3.6 billion across the U.S. airport system in 2018, the purchasing power of the $4.50 has of course eroded over time. By comparison, luggage charges generated an estimated $1 billion more at $4.9 billion in 2018.

“As the debt, liabilities, and cost structures at U.S. airports increase, fewer airlines generate the fees airports collect through rates and charges, meaning the airports rely more on non-aeronautical revenues from concessions.”

Being more leveraged through debt does add a higher risk when investing in airports. However, S&P Global Ratings did find that an increase in passengers has mitigated debt levels so far and that they “expect the sector can accommodate the higher debt levels and leverage.”

Want to learn more about how airports make money? Flip through this slideshow!

Equities Contributor: Frank Holmes

Source: Equities News

DISCLOSURE: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Passenger Facility Charge (PFC) is a tax each passenger pays for passing through an airport. Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (06/30/2019): JetBlue Airways Corp, Spirit Airlines Inc, United Airlines Holdings Inc, Delta Air Lines Inc, American Airlines Group Inc, Southwest Airlines Co, Alaska Air Group Inc, Allegiant Travel Co, Hawaiian Holdings Inc.

The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: The author of this article, or a firm that employs the author, is a holder of the following securities mentioned in this article : JBLU, SAVE, UAL, DAL, AAL, LUV, ALK, ALGT, HA


Symbol Name Price Change % Volume
UAL United Airlines Holdings Inc. 89.70 0.16 0.18 4,221,217 Trade
DAL Delta Air Lines Inc. 62.03 0.15 0.24 5,770,008 Trade
ALK Alaska Air Group Inc. 66.62 0.08 0.12 943,922 Trade
LUV Southwest Airlines Company 55.01 -0.29 -0.52 3,999,891 Trade
JBLU JetBlue Airways Corporation 19.21 0.21 1.11 5,571,754 Trade
AAL American Airlines Group Inc. 28.40 0.17 0.60 7,379,424 Trade
ALGT Allegiant Travel Company 177.79 0.19 0.11 637,063 Trade
HA Hawaiian Holdings Inc. 30.05 -0.39 -1.28 381,207 Trade



Symbol Last Price Change % Change





















World Economic Forum at Davos 2019 - Ben Yablon Executive VP Salt Lending

Matt Bird sits down with Ben Yablon - Executive VP of Salt Lending - at the World Economic Forum in Davos January 2019