Warning Oil Prices Could Hurt U.S. Airports

Higher oil prices may hurt the financial performance of U.S. airports, as capacity cuts by major carriers like American and Delta Air Lines could combine with higher operating costs on the ground, according to a new report by Fitch Ratings.

The report released last week warns that domestic airlines could face reduced traffic, as large carriers plan to continue expanding overseas routes, while either cutting domestic frequencies or canceling service to several cities. When combined with higher airfares, the impact could be that airports suffer from fewer passengers and reduced revenue from the airlines themselves.

"Airports that are more dependent on an accelerated pace of traffic and revenue growth in order to keep up with rising fixed costs are most vulnerable to negative rating actions," said Seth Lehman, senior director at Fitch, the ratings agency that provides research and data about corporate debt, municipal bonds and other securities.

According to a February report by the Federal Aviation Administration, there had been expected to be a 3.5 percent increase in passengers boarding aircraft in 2011. However the report raises concerns that capacity cuts and higher fares could impact those assumptions.

Airport officials say they depend largely on passenger spending inside airports, leasing revenue from airlines and landing fees, in which an airline pays an airport a certain amount of money for every passenger that lands there. Therefore if high fares and capacity cuts reduce domestic traffic, certain U.S. airports will have to find a way to make up the difference.

"Unlike the airlines the airports can't simply add capacity or pull back capacity," one airline official who asked not to be identified told AOL Travel.

Airport capacity and modernization have become big issues in recent years, as airport delays have strained capacity. During the recent winter season, thousands of flights were canceled due toheavy winter storms, costing the airline industry millions of dollars and forcing thousands of passengers to sleep in airport terminals.

Just last week, the Department of Transportation announced a $1.7 billion deal to continue construction on a new runway at Chicago's O'Hare International Airport, part of a $6 billion modernization effort that is expected to decrease delays by 80%.
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