The rapid clicking of a retro, split-flap departure board is the dominant sound in the deserted atrium of Frankfurt’s international airport.
The hub, one of the largest in Europe and a gateway to east Asia and the US, is receiving about 80,000 fewer passengers through its revolving doors each day, costing owners Fraport up to €7.8m in lost earnings a week, and putting independent shops in the airport at risk of bankruptcy.
“By midday, I would usually have sold more than €2,000 worth of goods” said the boss of a luxury clothes shop in the eerily-empty main terminal.
“Today, it’s just €20, and I don’t expect to make more than €50 in the whole day”.
The rapid spread of coronavirus, and the ensuing travel restrictions that are putting airlines under huge financial strain, led to one of the worst months on record for the airport industry, putting operators the world over under acute financial pressure.
Figures from ACI Europe, the European airport trade body, forecast that the region’s airports will have 187m fewer passengers in 2020 — down 7.5 per cent in a year — as against predicted growth of 2.3 per cent. This will result in a €1.32bn loss in revenues in the first quarter alone, it estimated.
“We have never had a decline this intense, and for such a long period of time,” said Stefan Schulte, the chief executive of Fraport, which is expecting a drop in passenger numbers of up to 60 per cent over the next month after its main client, German airline Lufthansa, cancelled more than 30,000 flights and called for state aid.
Even previous slowdowns caused by rising oil prices, the 2008/9 recession, and the ash cloud of 2010, led to only a single-digit decline, while the after-effects of the September 11 attacks, Mr Schulte said, “were largely compensated for in the space of the full year”.
But this latest crisis has forced operators, many of which have already imposed hiring freezes and offered workers unpaid leave, to consider much more drastic cost cutting measures.
On Wednesday, as Donald Trump’s decision to restrict travel from EU countries to the US sent airlines scrambling to react, ADP, the operator of Paris Charles de Gaulle airport, was considering shutting one of its terminals, said people familiar with the matter. Its chief executive, Augustin de Romanet, was diagnosed with the virus earlier this week.
In Italy, Aeroporti di Roma, which is owned by the infrastructure company Atlantia, said on Thursday that it would close Terminal 1 of Fiumicino, Rome’s largest airport, and would also shut the commercial passenger terminal of Ciampino, the city’s second hub. Nine regional Norwegian airports will be shut as of Wednesday.
Beyond Europe, the balance sheets of large airport groups are similarly fragile, with declines in the first quarter expected to lead to an estimated $4.3bn hit to revenues, according to ACI.
“Simply, passengers do not want to fly at all,” said James Goodall, an analyst at Redburn.
Cheaper fares, and the cost benefits from the sharp drop in the price of oil, “are unlikely to stimulate increased demand in the near term”, he added.
“This means the usual protection airports have from weakening demand — airlines dropping fares — is unlikely to have much impact.”
A sharp reduction in Chinese people travelling has also hit retail concessions hard, as they typically outspend the average global passenger by between 3 and 5 times, according to Hean-Ho Loh, partner at Boston Consulting Group.
At Singapore’s Changi airport, where Chinese travellers account for about 11 per cent of total passengers, traffic numbers in February were down 25 per cent year-on-year.
Before the outbreak, Chinese passengers represented a third of spending in the airport’s stores. “The impact of Covid-19 on our retail business has been amplified,” said a spokesperson for Changi, which has invested heavily in an entertainment and shopping complex.
On Friday, national carrier Singapore Airlines delivered another blow to the hub, announcing that as of Monday, those who have travelled to France, Germany, Italy and Spain within the past two weeks would be barred from entering — or even transiting through — the country.
At Dubai International Airport, which had almost 4m Chinese passengers last year, the marbled floors and colonnades of its third terminal resonate to the sound of nearby construction work and little else.
“Flights keep getting cancelled, and every day feels worse than before,” said one worker.
Emirates, the biggest airline in the region, has for weeks been cutting flights to Asia, while all routes to neighbouring Iran, the regional centre of the outbreak, have been halted.
“We have seen 70 per cent reduction in demand,” said one travel agent, sitting idly at his desk.
While airports tend to have higher profit margins than airlines, and as key national infrastructure, tend not to struggle to raise debt, operators are having to prepare for a worst-case scenario, in which the coronavirus outbreak continues well beyond next month, according to people close to two companies.
Blair Nimmo, head of restructuring at KPMG UK, said there has been a rise in demand from airports seeking help with contingency planning.
“At the moment the airports will be modelling all sorts of scenarios — their principal concern will be looking after cash,” said Mr Nimmo.
“As we don’t know how long it will last, it’s not easy for them”.
On Friday, Fraport, which has a workforce of more than 20,000 and is one of the largest employers in the Frankfurt region, would not provide a profit outlook for 2020, beyond saying that the coronavirus pandemic would have a “significantly negative impact”, and that with its mix of business passengers, it would be harder hit than most.
“We can’t estimate how bad it will be, without looking into a crystal ball,” said Fraport’s Stefan Schulte, who emphasised the company still had access to credit.
“But after all it’s a one-time effect,” he added.
“We will grow again”.
Duty-free shops count the cost
For an executive who depends on airports for almost 90 per cent of sales, Julian Diaz sounds remarkably unflustered, writes Jonathan Eley.
The Spaniard has headed Dufry, the world’s biggest duty-free shop operator, since 2004 and has been in the business long enough to remember the two Iraq wars, 9/11, Sars and the global financial crisis.
Based on this experience, he expects the worst to be over by mid-May. “In an economic crisis — and this is an economic crisis — there is always significant deterioration in the first two months. After, that you see an improvement during the third of fourth month,” he told analysts at the company’s annual results conference.
“March will be a very bad month for sure, down double digits,” he added. So far the greatest impact has been in luxury goods, with tobacco and spirit sales the least affected. But he expects a gradual recovery to start in May. The third quarter is the company’s most important, taking in summer in the northern hemisphere.
Meanwhile, Dufry is already cutting spending, leaving vacancies unfilled and encouraging staff to take holiday.
Brands are sharing some of the cost of promotions designed to increase sales per passenger, while talks have started with airports about varying the terms of concessions.
Many Asian airports have already cut the amount of guaranteed revenue they demand, most notably Hong Kong. It offered concessions to retailers, ground handlers and other affected parties after last year’s civil unrest in the city, and a second round of relief took the total value of the package to HK$1.6bn ($205m).
Mr Diaz said President Trump’s travel ban was concerning but pointed out that most of its North American business consists of shops for domestic travellers. “Our biggest point of departure for the US is Heathrow,” he added. London’s gateway airport, which accounts for 7 per cent of Dufry’s total sales, is not affected by the US ban.
The impact on WHSmith, a UK retailer with more than 400 shops in airports outside its home country, has been bigger. It said on Thursday that its full-year profit is likely to halve.
Industry watcher Martin Moodie said there was some evidence that the crisis was easing in key markets in Asia. “We think the first rebound will be in intra-Asia travel, as Chinese will still want to travel in the second half, but are much more likely to do so closer to home.”
Chinese customers are important in travel retail not just because of their numbers, but because their spending tends to be higher. Airports around the world have invested heavily to appeal to them, according to Mintel travel analyst Marloes de Vries.
The big drop in passenger numbers will also affect luxury goods and spirits groups, though their exposure is proportionately much smaller. Pernod Ricard, which depends on travel retail for between 5 and 10 per cent of sales, said in February that it expected coronavirus to reduce full-year revenue by around 2 per cent. However, that was before the sharp rise in infections in Europe.
Additional reporting by Miles Johnson in Rome, David Keohane in Paris, Simeon Kerr in Dubai, Richard Milne in Oslo, Stefania Palma in Singapore and Jamie Smyth in Sydney.