Istanbul Airport is the world’s largest airport ever to have been built from scratch. First opened in 2018, it should be ready to welcome as many as 200 million passengers by its completion in the mid-2020s.
At the start of 2020, CEO Kadri Samsunlu was asked what he thought was the biggest disruptor facing the aviation sector. He named biometrics, facial recognition technology and laws around data. “I think if you asked him the question today, he would not have the same answer,” says Jo Dardenne, from Brussels-based NGO Transport and Environment (T&E).
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Covid-induced travel bans have caused a massive international aviation crisis. Between Samsunlu’s words being published in the International Airport Review in March 2020 and January 2021, European airlines alone have received bailouts worth a total of €42.8bn. This figure is set to grow as the sector enters a period of prolonged depression. Air France-KLM will reportedly receive another multi-billion euro bailout after it revealed an annual loss of €7bn for 2020.
Airlines including Flybe, Virgin Australia and Colombia’s flag-carrier Avianca have all declared bankruptcy. Surviving airlines are speeding up the retirement of older aircraft models, while Lufthansa, Korean Air and Qantas have grounded fleets of the massive Airbus A380.
Air navigation safety body Eurocontrol does not expect a full recovery until 2026. “Covid has restructured the sector in a way that nothing before ever has,” said Allan Schulte from US management consultants Bain & Company in December 2020.
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By GlobalDataAirport income comes through a combination of aircraft and passenger fees, and commercial operations in terminal buildings. Both streams have been severely curtailed by the drop in travel. In 2020, total airport revenues were 65% below a business as usual scenario, estimates the International Civil Aviation Organisation, a UN agency.
So airports have also received multi-billion-dollar bailouts to keep them afloat. Mainland European airports have received €2.2bn in bailout funds, says the Airports Council International (ACI) Europe. The lobby group wants EU competition authorities to further relax state aid rules to enable more financial support.
Airport construction
Paradoxically, at the same time, airport operators worldwide are investing hundreds of billions of dollars to expand or build new airports. There are 673 airport construction projects under way, valued at $625.5bn, show figures from GlobalData. The cost of these projects ranges from $11m to double the capacity of the international airport in Campo Grande, southern Brazil, to $22bn to expand Qatar’s international airport.
The figures for new airports only tell part of the story. GlobalData also records some airport construction projects as parts of broader infrastructure programmes, such as road or rail building. For the purposes of this article, the focus will be on those projects where airport infrastructure is the primary objective. With that definition, the 48 airport infrastructure programmes recorded by GlobalData include $61bn for airport development in India, $14bn to improve and expand Los Angeles International Airport and $2.5bn for Uganda. The total value of all 48 projects is $457.8bn.
All these projects pre-date the pandemic. The volume of domestic and international passenger flights increased 2.7-fold between 2000 and 2019, notes the International Energy Agency (IEA).
Aviation lobby groups claim air travel can largely recover its pre-pandemic trajectory. “There is a lot of pent-up demand for flights,” says Paul Everitt, chief executive of the British trade association Aerospace, Defence, Security & Space. “We are confident we will see a fairly quick rebound once we are through the pandemic, even if things are not quite business as usual.”
One problem, though, is that while international tourists may soon fly again, it is less likely business travellers will return in the same numbers. “Everyone is working remotely, using new technologies like Zoom, and it seems unlikely we will need [to travel to] so many conferences back and forth across the globe,“ says Dardenne.
Business travellers only occupied 20% of the seats before the pandemic, but they brought in 60–70% of the profits, says Bain’s Schulte.
“A loss of business travellers will impact the growth rates of airports because they will no longer need to provide the same facilities and lounges, which are what make big airports profitable and attractive to investors,” adds Dardenne.
Environmental concerns
Covid-19 is not the only major disruptor confronting aviation. The sector contributed about 2.8% of global CO2 emissions in 2019, according to the IEA, with total emissions nearly doubling between 2000 and 2018. These will have to be curbed if the world is to avoid the worst effects of climate change.
“I would imagine, looking at these ongoing airport construction projects, that all of them will have to be reassessed,” says Joana Setzer, assistant professor at the Grantham Research Institute on Climate Change in the UK. “Not only for what Covid has done and might continue to do to the economy and to travel, but also if countries are serious about the commitments they made under the Paris Agreement.”
Since the 2016 Paris Agreement, an ever-increasing cohort of countries and companies have committed to net-zero emissions goals. At the close of 2020, around 130 countries were at least discussing legally binding net-zero targets, says the Energy and Climate Intelligence Unit, with 12 jurisdictions having already agreed on the target in law or proposed legislation.
International aviation has been one of the slowest sectors to address decarbonisation. Its target to reduce CO2 emissions by 50% by 2050 from 2005 levels was set over a decade ago. However, the pandemic appears to be starting to dispel industry-wide lethargy.
Half the respondents to ACI’s recent Aviation Investment and Sustainability Report, which interviewed lenders, advisers, investors and governments, agreed the dramatic effects of the pandemic on the industry had “escalated climate change as a risk to investment [in airports]”. Even though 40% remained unconvinced, the report concluded that “the scale of the disruption has challenged all previous perceptions of risk” with a “broader desire for clearer and more comprehensive contingency plans to address future risks, such as climate change”.
Multiple airlines – including 13 members of the Oneworld Alliance that includes British Airways, Cathay Pacific, Qantas and American Airlines – committed to net zero 2050 targets in 2020. Over 20 European aviation associations, representing nearly the whole EU sector, have declared the same target.
There is a disconnect between an aviation industry looking to decarbonise in the long term, and hundreds of airport construction projects set to vastly increase global aviation capacity. Only a handful of the many hundreds of airports listed by GlobalData feature the term “sustainability” as an ambition in their project descriptions. These include the $345m expansion of Goteborg Landvetter Airport in Sweden, which aims to achieve a BREEAM sustainability certification of at least ‘Very Good’, and a $1.4bn expansion programme of 12 airports in Mexico. The latter aims to build the “first sustainable terminals in Latin America”.
Regardless of the sustainability of airport buildings, most analysts estimate clean air travel is years away. This means that, at least for the time being, increased airline capacity at airports is synonymous with increased emissions.
Stranded assets?
The aviation industry has long enjoyed wide-ranging subsidies through flag carriers being owned by national governments, an absence of VAT or fuel taxes, and grants offered to airports. Around a quarter of airports served by Ryanair were likely to be getting state aid, found a 2019 analysis of EU airports by T&E. This state of affairs would theoretically allow airports to keep charging the lower landing fees needed to ensure the profitability of budget airlines.
A total of 69% of airports worldwide were loss-making in 2015, says ACI. “One of the reasons why aviation emissions have kept soaring right up until the start of this crisis is the fact that government efforts have gone towards subsidising the sector and not towards regulating emissions,” says Dardenne. ”There has been a lot of money going into building airports and to supporting airlines to boost passenger traffic – but all those efforts went to waste when Covid came along.”
Nevertheless, there are signs that years of unabated support for the aviation sector may be coming to a close.
The European Investment Bank appears to be considering ending support for airport expansion. Ratings agency Fitch released a report in February highlighting an increased risk of certain infrastructure becoming ‘stranded assets’, or unable to provide financial return before the intended end of their economic lives. In addition to understanding the term in the context of the fossil fuel industry, “various physical assets, such as infrastructure, factories, transport vehicles and real estate could be considered stranded assets if their life cycle is shortened by regulatory requirements to reduce their carbon emissions”, conclude the authors.
“Airports are much riskier than their backers seem to realise,” says Kingsmill Bond from think tank Carbon Tracker.
The aviation industry is confident about its continued viability. “It is important to separate the concept of ‘stranded assets’ from its traditional meaning in the oil industry and sectors such as aviation,” says Haldane Dodd from Air Transport Action Group, an independent industry group. “Our core product is travel and connectivity. The desire to travel will always be around and it is our responsibility, working with governments, to ensure aviation’s connectivity benefits can be delivered with ever-decreasing CO2 emissions.”
‘Airports are much riskier than their backers seem to realise. Kingsmill Bond, Carbon Tracker
He adds: “Airports, like the rest of the aviation sector, are focused on collaborative action to ensure their assets can be used by a decarbonised industry in the decades to come. Planning and long-term thinking are second nature to the airport sector, but become even more important now as we work to support the industry’s green growth.”
Juliana Scavuzzi, an environmental director at ACI, agrees. “While short to medium-term risks have undoubtedly been accentuated in the current context, longer-term fundamentals still apply. Many of the city markets where airports are being built either serve a huge population base or represent major points of international connectivity.”
“While a number of airport projects have gone ahead as planned, many have also been deferred to a later date – these remain local decisions balancing the immediate downside risks with the longer-term recovery of the aviation sector,” she adds.
Legal precedents
Beyond increasingly stringent environmental regulation, investors also now face the risk of delay or disruption to proposed airport projects as a result of litigation claims brought forward by those championing environmental concerns.
The most notable example is Heathrow’s third runway. In February 2020, Heathrow’s expansion plans, which would increase capacity by 260,000 flights a year, were ruled illegal by the UK Court of Appeal. The court declared the plans did not sufficiently take into account the government’s commitment to tackle the climate crisis. This was the first major ruling anywhere in the world to be based on the Paris Agreement.
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The successful challenge was brought by charity Plan B alongside other challenges from local residents, the mayor of London and environmental groups including Friends of the Earth and Greenpeace. In December, however, the Supreme Court overturned the ruling.
“Litigants made it clear that the government should consider emissions and the 1.5˚C [Paris Agreement] goal,” says the Grantham Institute’s Setzer. “But the Supreme Court reversed the decision, sending a message that it is lawful to rely on the 2˚C limit for assessing major national projects such as Heathrow’s expansion.”
There are examples of successful cases in other jurisdictions, she adds. The Heathrow project can now reseek planning permission, but completion of the $18bn runway remains uncertain.
Litigants are also pushing for decisions made in foreign courts to be considered in their own courts. They argue that foreign decisions are relevant because of the global nature of climate change. “What is beginning to happen in climate law is a consideration of transnational legal precedents,” says Setzer. “This is quite unique to climate change.”
Cait Hewitt, deputy director of the UK-based Airport Environment Federation, says: “In the UK, airport expansion plans are coming under real pressure now. Both the courts and local authorities are trying to grapple with the question of whether these proposals contravene our net-zero legislation.”
Considering the hundreds of airports being built worldwide, she adds: “To meet the Paris Agreement all sectors will need to get to net-zero emissions in the next few decades. That is going to be really hard to achieve in aviation because it has so few technology or sustainable fuel options that can make a big enough impact in […] time.” She adds: “The kind of growth that we were seeing in aviation and airports around the world pre-pandemic will have to change.”
Nevertheless, there are limitations to what litigants can achieve in autocratic countries like China and the Gulf states, which is where much of the ongoing investment in airports is taking place. “Airports tend to be primarily governments’ decisions,” says Setzer.” If you want to fight that, you are better off in a country with a strong rule of law and democratic systems.”
Sustainable economics
Proposed airport construction projects face an uncertain future, coming up against economic, regulatory and legal obstacles. Facing these challenges, and catalysed by the immediate downturn triggered by the pandemic, the French government this month shelved plans to build a fourth terminal at Charles de Gaulle Airport. The project would have boosted the Parisian airport’s handling capacity by up to 40 million extra passengers a year, at a cost of €7–9bn.
French Ecology Minister Barbara Pompili said the project was “obsolete” and the aviation industry needed to focus on reducing the sector’s greenhouse gas emissions, including infrastructure for a new generation of planes fuelled by hydrogen or biofuels.
“The only pathway to aviation growth is one that prioritises emissions reduction and broader sustainability,” says Tom Thackeray, director of infrastructure at British industry body the CBI.
If we don’t manage to clean up, we will be left with empty, worthless infrastructure. Jo Dardenne, Transport and Environment
“We will need new and upgraded infrastructure,” says Everitt. “Kerosene makes a great aviation fuel because it is incredibly flexible and rich in energy. Whatever the new technology might be – whether hydrogen, other kinds of fuel, or electrical charging – we need to have the capability to meet its requirements.”
However, this technology is a long way off and airlines operate in a highly competitive market, with industry profits averaging around 6–8%, says the IEA. Any shift in fuel sources or related technologies is challenging. This has traditionally limited most manufacturers to championing efficiency measures – emissions for an individual flight halved on average between 1990 and 2020 – over riskier redesigns.
Various airlines including United Airlines, Air France and Lufthansa have flown flights using biofuel blends, but such moves represent incremental improvements, rather than a viable zero-carbon pathway.
“The more we delay the implementation of clean technology, the more the risk of us not being able to fly in future,” says Dardenne. “If we push tech and clean technology now then all airports around the world can have a role. If we don’t manage to clean up, we will be left with empty, worthless infrastructure.”
