Australia Pacific Airports Corp. Ltd.

The negative outlook continues to reflect the uncertainty surrounding air travel because of COVID-19 and the risk it presents to APAC's balance sheet if any meaningful recovery is prolonged beyond the next two years. This is particularly the case for international travel, which is unlikely to start in a material way before mid-2022. Domestic travel, however, can pick up swiftly in the absence of state border closures. We think FFO to debt could improve to around 5% in fiscal 2022 mainly because of domestic traffic, before improving toward 8% from fiscal 2023 with a reasonable start of international travel. These projections are based on continuing strong controls on operating expenditure, capital spending, and shareholder distributions until at least fiscal 2023.

...Traffic projection remains challenging due to the emergence of COVID variants and slow vaccine rollouts in Australian and Asia-Pacific markets. Based on observed trends over March to June 2021 across various Australian airports, domestic travel at Melbourne airport could ramp up quickly (60%-75% of pre-COVID) due to pent-up demand for travel and because international borders effectively remain closed until mid-2022. Still, this ramp-up rate could stall if COVID variants force snap closures of state borders. Trans-Tasman travel is in a start-stop phase, so meaningful international travel is unlikely to begin before mid-2022. We believe this could increase to about 50%-70% of pre-COVID levels in fiscal 2023 The wide range depends on which country borders are opened, the speed of the vaccine rollout in Australia, and policies around quarantine-free travel for vaccinated travelers from around the globe. Fiscal 2022 will be driven by domestic traffic before international travel contributes meaningfully...

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