Airports: prospects look up as passengers return to the skies

As a traveller, it is hard to love airports. The queues, the strip lighting, the overpriced lattes — and plenty of time to enjoy all three.

For investors, however, airports might be a good way to play the post-lockdown resurgence of flying — and the welcome return of the Chinese traveller. Friday’s news that British Airways owner International Airlines Group has returned to profit is a sign of that recovery.

Top-tier hubs generally have three revenue streams. The meat of the business is aeronautical — the money that airlines pay to the airport for each passenger they carry. Next up is retail, which is driven by what people buy when they are in the airport. Third, come other services — think train services, or real estate revenues from hotels and depots.

That makes hubs good businesses. They are the utilities of air travel — exposed to volume risk but not to the cut-throat competition on fares that can prove so painful for airlines. They have an element of growth, as air travel inches its way back from the pandemic lows. French airports group ADP expects 2023 passenger numbers to be between 95 and 105 per cent of pre-pandemic levels.

And the pricey brands on airport premises make them a bit of a luxury stock, too — a sector that is expected to do well this year as China reopens.

Airports are not one-way bets, of course. Labour and energy-price inflation take a chunk out of profits. Operating costs at Heathrow, part-owned by Spanish infrastructure owner Ferrovial, were 7 per cent higher last year than in 2019, despite much lower footfall. And the upward trajectory of passenger numbers is not as steep as projected pre-pandemic, given the ubiquity of the Zoom call. Indeed, airports serving leisure destinations have outperformed those serving business customers, suggesting most of us still like to attend our holidays in physical form.

The business of flying has, to some extent, changed. But the stock prices of leading European-listed airports more than reflect that. Both Frankfurt’s Fraport and ADP are still at least a fifth lower than they were at the start of 2020. Both shares trade at an enterprise value-to-forward ebitda of 11.5, below the 10-year average. For investors who believe in a return to the skies, they may be a good alternative to — very bumpy — airline stocks.