Despite the plummeting of passenger traffic around the globe in recent years, over 200 airports are still experiencing more airline demand than they can accommodate at peak times, which results in the implementation of strict slot coordination processes to allocate scarce airport capacity.
Airport capacity constraints and congestion is only likely to increase in the coming months and years. ACI World projects that worldwide passenger traffic by the end of 2022 will reach 6.5 billion, up from 4.5 billion in 2021. From 2025–2040, ACI World’s Airport Traffic Forecasts predicts that total passenger traffic worldwide will grow at a compound annual growth rate (CAGR) of 4.1%. As most of countries are expected to reach pre-pandemic levels by 2025, looking at the 2025–2040 CAGR gives us a good indication of the long-term trend post-COVID-19.
The airport industry is asset intensive. Consequently, the airport cost structure is characterized by high fixed costs which can be divided between operating expenses (OPEX), which are the expenditures on day-to-day operational activities, including costs associated with staff, utilities, safety and security, and capital expenditures (CAPEX).
CAPEX are vital expenses for the airport industry; they are the funds used by an airport operator for the acquisition, construction, or improvement of fixed assets such as land and buildings. These types of outlay are made by airports to maintain or increase the scope of their operations and are allocated for specific time periods. These expenditures can include everything related to increasing airport capacity, ranging from additional check-in desks to building a new terminal building or runway.
Capital expenditures can be used for both greenfield investments or brownfield investments. Greenfield investments are capital expenditures allocated to the development of a new airport on a piece of land that has never been used for aviation, while brownfield investments are those aimed at remodeling, improving, or expanding existing facilities and assets within an airport property.
According to historical 2015–2019 data, the global average annual CAPEX per passenger was US$7.83, which translates into a total average annual CAPEX of US$63,781 million for the period. Capital investment levels tend to vary by country and region. Developed and rapidly-developing countries are inclined to having greater capital investments due to fast passenger growth projections that require airport infrastructure. Those countries also often face higher capital costs.
Despite the importance of historical airport capital expenditures, airport capacity constraints and congestions, especially at peak times, have not eased. The number of slot constrained airports kept increasing, from 170 Level 3 and 120 Level 2 airports in 2015 to 200 and 153 respectively for the North Summer 2022 season.
ACI World estimates that US$170.1 billion is required in capital investments in 2040 alone. Cumulatively from today to 2040, US$ 2.4 trillion in capital investments is needed to meet air passenger traffic demand.
Full details on the global and regional CAPEX required to meet the capacity gap and the different pathways and CAPEX premiums associated with carbon neutrality and net zero goals are contained in the ACI World Global Outlook Airport Capital Expenditures report. The publication was developed in collaboration with Oxford Economics and Tailor Airey and with the financial contribution of Hamad International Airport.
Failure to address the capacity gap by 2040 will have real socio-economic consequences. For every 1 million foregone passengers due to airport capacity constraints in 2040, the global air transport industry will support 10,500 fewer jobs and provide US$346 million less in GDP.
Failure to address capacity needs will also result in increased capacity bottlenecks at airports. The number of slot constrained airports is likely to increase accordingly, imposing an administrative allocation system to overcome the lack of airport capacity. Airport constraints mean fewer flights can be scheduled leading to:
As such, meeting airport capital expenditure needs is essential to alleviate slot constraints wherever possible and to ensure that airports can better serve consumer demand.